The Rise and Fall of Fannie Mae and Freddie Mac: Lessons Learned and Options for Reform

Not so long ago, the US housing finance system was arguably the best in the world. Consumers had access to products that were not available elsewhere, and the market was able to sustain major economic disruptions with relatively little impact on either the cost or availability of mortgage credit. Fannie Mae and Freddie Mac (hereafter the GSEs) provided the cornerstone of that system and deserve much of the credit for its success. But despite their many accomplishments, Fannie Mae and Freddie Mac are now essentially wards of the state and most policymakers have concluded that the GSE model is effectively dead. This paper attempts to establish a case for GSE reform that retains a market-driven approach but addresses acknowledged problems through charter revisions and better regulation.