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Revisiting the Net Benefits of Freddie Mac and Fannie Mae

to the financial system when making policy recommendations.

Dwight M. Jaffe, “On Limiting the Retained Mortgage Portfolios of Fannie Mae and Fred- die Mac” (2005). The author reviews the GSEs’ role in the secondary mortgage market as well as the manner in which interest risk is hedged in their retained portfolios. He concludes that the retained portfolios threaten the U.S. financial system and American taxpayers and he advocates a reduction in their sizes.

John M. Quigley, “Federal Credit and Insurance Programs: Housing” (2006). The author recounts the development of the second- ary market by reviewing the activities of FHS and the GSEs in increasing homeownership. Quigley suggests that GSE activities in their current form are no longer required to sustain the current levels of homeownership. He recommends reducing the conforming loan limit, restricting GSE purchases of mortgages to first-time homebuyers, reducing the size of the retained portfolios, and charging the GSEs for disaster insurance.



Appendix: Recent Literature

Susan E. Woodward, “Rechartering Freddie Mac and Fannie Mae: The Policy Issues” (2001). Dr. Woodward, a former Chief Economist at HUD and the SEC, reviews the policy issues surrounding the question of whether to privatize Freddie Mac and Fannie Mae. Her main theme is that the U.S. mortgage market is largely a creation of the federal government. Among other conclusions, she argues that a mortgage market without GSEs would likely be less efficient than the current market and that taxpayers would likely bear as much risk under such an arrangement as they do currently with the GSEs.

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