Defining a Post-Crisis Role for the Housing GSEs

This briefing presentation offers a high-level perspective on the core structural problem that doomed Fannie Mae and Freddie Mac’s credit extension programs.  In light of that structural problem, it argues that both of the opposing political narratives about the GSEs -- that they were victims of Congressional subprime lending mandates, or that they were the victims of unchecked Wall Street greed -- are off the mark.

It proposes gradually winding down most of GSEs’ credit extension and portfolio functions entirely, and over time building a housing finance system that relies on different sources of liquidity (like bank balance sheets, and covered bonds) and a far narrower range of government subsidies (like VA guarantees, and a subsidized interest rate swap to promote otherwise untenable fixed-rate loans).