NCPA - National Center for Policy Analysis

What Do Fannie And Freddie Need: Regulation Or Competition?

July 12, 2001

Rep. Richard Baker (R-La.), head of the House subcommittee that oversees Fannie Mae and Freddie Mac, has long questioned the special status of those home-mortgage entities. Although they are owned by stockholders, they enjoy special protections and favors granted by the federal government -- which are a cause of complaint to Baker.

Earlier this year, the congressman introduced legislation to create a new regulator for Fannie and Freddie under the auspices of the Federal Reserve. Finding his bill lacked support, Baker changed tactics and now raises the prospect of chartering new companies to compete with the mortgage-purchasing giants.

  • The latest proposal comes on the heels of a Congressional Budget Office study showing the companies' ties to the government give them indirect subsidies totaling $10.6 billion annually -- with $3.9 billion retained by the companies and their shareholders.
  • FM Watch -- a lobbying coalition that includes competing financial-service companies and mortgage-industry trade groups -- revealed its own complementary study yesterday in hearings before the subcommittee.
  • The organization contends that only 5 percent of the government subsidy identified by the CBO goes to Americans earning below the median annual income of $40,800.
  • Furthermore, it charges that Fannie Mae and Freddie Mac disproportionately purchase the mortgages of whites, compared with blacks and Hispanics.

A senior Freddie Mac official has characterized the CBO study as "flawed analysis" and a "contrived academic exercise." As for the FM Watch study, a Fannie Mae spokeswoman called that one also "flawed."

Source: Nicholas Kulish, "Prospect of Rivals to Fannie, Freddie Is Raised by Baker," Wall Street Journal, July 12, 2001.

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