Fannie Mae-No Politics (FNMA)

[big-yank]

You raise an excellent point about "some" level of government support being appropriate as a backstop of sorts to prop up the housing market. Much of the concern about the GSEs and whether to privatize or not seems to involve the guarantee on MBS. But why couldn't it be crafted in a different form where the government "subsidy" (call it what you will) comes in the form of an advantaged interest rate provided by the Fed.

If the goal is affordable housing and preservation of the 30-year mortgage vehicle, why not support that with Fed mortgage capital at some advantaged rate at the discount window. This would be a lot less controversial than a government guarantee, partly because the risks get offset by lowered borrowing costs but also because default-driven risks remain the responsibility of the GSEs. They are only providing a cushion in interest costs to allow Fannie & Freddie to both recapitalize and build up reserves for any future systemic failures.

The Fed is not a governmental agency, so this also removes the risks of debt transferral to Uncle's tab under debt ceiling constraints. And the Fed's primary mantra of managing inflation's impact on monetary issues would only be enhanced by supporting low rates in what historically has been one of America's largest and safest investment areas... the real estate market.

Your message has ignited a new opportunity to explore.

Thanks.