#05-32
On Truly Privatizing Fannie Mae and Freddie Mac: Why It's Important and How to Do It
Lawrence J. White
Abstract: The special status, large sizes, and recent rapid growth of Fannie Mae and Freddie Mac have
created and/or contributed to a set of difficult policy problems that include: misguided and excessive
subsidization of housing in the U.S.; the safety and soundness of the two companies; systemic risk;
residential mortgage terms and structure; and the inherent efficiencies of the two companies. The
two companies are embedded in a much larger web of policies that broadly and inefficiently
encourage housing construction and consumption. The true privatization of the two companies is
the best solution to the problems that specifically involve them and would constitute a good start
toward correcting the excesses of American housing policy. This true privatization can be
accomplished in a relatively clean and straightforward fashion.
Keywords: G21, G28
JEL classifications : Fannie Mae; Freddie Mac; government-sponsored enterprises; residential mortgages;
securitization; privatization
