Reforming Fannie Mae and Freddie Mac:  Myths versus Reality

(Washington, D.C.) – Citizens Against Government Waste (CAGW) today released a new policy brief:   Reforming Fannie Mae and Freddie Mac: Myth Versus Reality.  The current legislative session has featured contentious and robust political wrangling over reform after revelations that Fannie Mae systematically violated generally-accepted accounting practices in order to project a smooth earnings picture to investors and trigger large executive compensation bonuses.  Several of Fannie Mae’s top executives have been forced to resign and the company has been ordered to restate its earnings going back to 2001.  Investigations are ongoing, and prior to the revelations concerning Fannie Mae, its twin, Freddie Mac, also admitted serious accounting deficiencies.   

The problems facing the nation’s largest government-sponsored enterprises (GSEs) and the potential threat to taxpayers are serious national issues and GSE reform proposals merit judicious, non-politicized review.  CAGW’s policy brief is designed to counter the inflammatory rhetoric and cynical shenanigans that the GSEs have become famous for.  While GSE executives publicly claim to welcome the creation of a new, independent world-class regulator, they appear supportive only as long as the new entity has few powers to actually oversee their activities.  The following is one of seven myths exposed by CAGW Director of Special Projects, Leslie Paige: 

Myth:        A regulator with authentic powers to preview and approve the GSEs’ mortgage products, programs, and activities will significantly hinder their ability to quickly market innovative mortgage products.

Reality:    Fannie Mae and Freddie Mac are not home mortgage lenders – they do not make any loans.  Instead, they operate at the wholesale level, buying up mortgages already made by private sector lenders.  The preponderance of the home mortgage innovation and new mortgage instruments are created by the mortgage originators.  In fact, many argue that the private sector could provide even further innovation if not for the limiting purchase criteria set by the GSEs.  

Visit CAGW’s web site to view the complete report:  www.cagw.org. 

Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.