The Role of the Government in Home Loans

The Freddie Mac/Fannie Mae crisis is resurrecting the debate over the role the federal government should play in the housing market.

1 minute read

July 18, 2008, 11:00 AM PDT

By Tim Halbur


'The questions are not merely theoretical. They include: Should the federal government, on top of its existing debt of about $9 trillion, become the explicit backer of home loans – to the tune of $5 trillion and rising?

That's the tally of loans owned or guaranteed by Fannie Mae and Freddie Mac. The two corporations blend private management with a federally chartered role to help an often-volatile mortgage market function smoothly. Despite the word "federal" in their original titles, the government does not explicitly stand behind either one. In the ongoing housing crisis, it may have to.

With investors losing confidence in Fannie and Freddie, politicians of both parties agree there's little choice but to make sure the firms don't fail – or even approach the brink. Where lawmakers don't all agree is whether that should mean a perpetually larger federal responsibility in the housing market.

'There are certainly a number of different possibilities, rising from outright nationalization to privatization and breaking them up,' Federal Reserve Chairman Ben Bernanke said in a congressional hearing this week, summarizing the options. 'My main hope is that you'll come to a good consensus and get legislation out.'"

Thursday, July 17, 2008 in The Christian Science Monitor

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