The Debate over Fannie and Freddie

by Laura Ehrenberg-Chesler on August 19, 2010

in Credit Crisis,Residential Real Estate

There is a lot of chatter these days about the role Fannie Mae and Freddie Mac played in the housing bubble, and the economic crisis that ensued. 

One school of thought is that Fannie and Freddie were just following the lead of the business community in chasing profits in sub prime lending.  The other believes they did not act prudently as a for profit, government sponsored entity, which carried an implicit government guarantee.

Both of these points of view ignore the fact that in the early 1990’s Fannie and Freddie, as well as the banks, were “incentivized” by the government to make sure home ownership was available to almost everyone, regardless of the ability to pay their mortgage.  Eventually, prudence and good judgement went out the window, and hence the housing bubble.

Maybe it would be better to keep the government out of the home ownership business.

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