A cautionary note for those intent on gutting GSEs
There is a body of opinion in Washington that the best way to move on from the conservatorships of Fannie Mae and Freddie Mac is to develop legislation to create a new housing finance system that retains a government backstop.
However, there can realistically be only muted hope that today’s Congress, nine years after the conservatorships started, will agree on a feasible strategy to unwind Fannie and Freddie and replace them with a viable alternative. Washington is too divided; the chances of a bipartisan bill are still in question.
Of course, Congress doesn’t need to act to end the conservatorships. The Housing and Economic Recovery Act of 2008 in fact empowered and delegated the Federal Housing Finance Agency with the legal authority and responsibility to bring Fannie and Freddie out of conservatorship — assuming they can be sufficiently capitalized — and reform their regulation. The law could not be any clearer about the FHFA’s authority to set the housing finance system on a proper footing without direction from Capitol Hill.