Post published for www.bloomberg.com, January 22, 2012
When Congress voted on Dec. 23 to fund a temporary extension of the payroll-tax holiday in part by requiring Fannie Mae (FNMA) and Freddie Mac (FMCC) to increase their fees, it effectively ended the fiction that the two mortgage-financing giants are part of the private sector.
Lawmakers should now recognize budgetary reality and put the firms’ liabilities on the government balance sheet and include their spending in the federal budget. The purpose of doing so shouldn’t be to keep the firms as part of the government, however. Rather, it should be to motivate reform that leads to a housing system driven by private capital.
When Fannie and Freddie — known as government-sponsored enterprises — were put in conservatorship as their finances deteriorated in September 2008, officials didn’t put them on the budget. Adding their roughly $1.5 trillion in debt and $3.5 trillion in mortgage guarantees to the gross U.S. debt might have raised questions about the country’s financial stability and exacerbated the financial crisis then under way (even though the $5 trillion of liabilities were matched by nearly as much in assets). And conservatorship was only intended to be temporary.
Three years later, with the government now using the firms as cash cows to pay for activities unrelated to housing — and with everyone from the president to Congress to the Federal Reserve looking to dictate their refinancing standards and other activities — the White House’s assertion that Fannie and Freddie aren’t government agencies is no longer tenable.