President Obama and the 111th Congress need to break up the two primary housing government sponsored enterprises (GSE) into 10 regional operations with all of them competing with each other to purchase mortgages. This competition would be much more effective in regulating the GSEs than formal government management. It would also serve to police the issuance of mortgages by mortgage bankers because the secondary purchasers will not want to purchase dubious paper. The competition will also keep housing prices in the world of reality and not let them spiral out of control and burst the bubble the way they did in 2008.
These NEW Fannie's and Freddie's should be owned by private shareholders without the government sponsored enterprise guarantee. Their investment dollars should strictly come from the income from of Mortgage Backed Securities (MBS). Of course, unfortunately, the federal government will have to pick up any debt from the OLD Fannie and Freddie and honor the debt and asset obligations. With such a large financial obligation, the Old Fannie and Freddie will probably have to become government agencies.
The GSEs would still operate under the regulatory authority of the Office of Federal Housing Enterprise Oversight (OFHEO), which was established as an independent entity within the Department of Housing and Urban Development by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). OFHEO works to ensure the capital adequacy and financial safety and soundness of Fannie Mae and Freddie Mac. OFHEO is funded through assessments of Fannie Mae and Freddie Mac. OFHEO's operations represent no direct cost to the taxpayer.
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