According to CNN, the Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday. CNN reports that the highly-anticipated “white paper,” which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said. While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.
One of the options that may be considered is the elimination of Fannie and Freddie altogether. I am no fan of government, but the elimination of these two firms will further damage housing in America. Fannie and Freddie did work and can work again properly.
When my father was Chief Economist of the National Association of Home Builders (NAHB), he was very close with the management of these two firms. He used to complain how inefficient they were and how impossible it was that they didn’t make money. Then in 1981, David Maxwell became the CEO of Fannie Mae, and took a money loosing operation and turned it into a cash cow.
Named by Fortune one of the Top Ten Greatest CEO’s ever, Fannie Mae was losing $1 million a day when he arrived–“an opportunity to make [it] into a great company.” Fortune reported that in that same year, Fannie Mae’s stock hit an all-time low of under $5.00, yet by the time he retired in the early 1991, Maxwell’s Fannie Mae’s stock was over $40. “More inspired than inspiring, more diligent than dazzling, Maxwell took a burning house and not only saved it, but built it into a cathedral. Some steps, such as selling off $10 billion in unprofitable mortgages, were classic fireman stuff. But his deepest genius was to frame the rebuilding around a mission: strengthening America’s social fabric by democratizing home ownership. If Fannie Mae did its job well, people traditionally excluded from owning homes –minorities, immigrants, single-parent families–could more easily claim their part of the American dream. If turnaround is an art, Maxwell was its Michelangelo,” reported Fortune.
Years later, the craziness began. The out of control lending, fueled by greed and political corruption, sent Maxwell’s well-oiled, money-making machine into complete chaos. What Fannie Mae (and Freddie Mac) needs now is another David Maxwell. Someone who is bright and tough, and can turn things around again. Like I said, don’t through the baby out with the bathwater.