House Financial Services Committee Chairman Barney Frank is calling for the abolition of Fannie Mae and Freddie Mac, the government-sponsored enterprises with a public mandate to boost home ownership, and which were taken into conservatorship during the 2008 financial crisis.
In an appearance on Fox Business Network tonight, Frank said they should be replaced with new programs to support affordable rental housing.
“I think they should be abolished,” Frank said. “The only question is what do you put in their place. This is a situation where given the importance they had come to play in housing, you can’t tear down the old jail until you build a new one. And that’s a process that we’ve started.”Frank went on: “I have been very critical for a long time that not everybody should be a homeowner. There are people in this society who for economic and frankly social reasons can’t and shouldn’t be homeowners. I do want some government help to build affordable rental housing.”
During the Congressional debate over financial reform, Republicans blasted Democrats for not taking steps to reform or abolish Fannie and Freddie. Many Democrats in Congress oppose GSE reform, particularly in absence of a parallel efforts to support housing for the poor. Republicans, though, have consistently overstated the role Fannie and Freddie (and low-income homeownership in general) played in creating the housing bubble and financial crisis.
“There were two problems with the housing market,” Frank said. “People were making loans that shouldn’t have been made, and Fannie and Freddie were then buying those loans in the market. One of the things we have already done is to take every possible step to stop the bad loans from being made. The bill that President Obama signed outlaws the kind of subprime irresponsible loans. We have made those loans illegal and that is an important part of this overall reform. We have taken a lot of the toxic elements out of the system.”
Frank has pledged in recent weeks to draw up legislation reforming Fannie and Freddie later this year, though political gridlock and a crowded legislative schedule will make passage of any major reforms difficult.