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ABA: The American Bankers Association

GSE Reform

Protecting Taxpayers by Reducing Dependence on Fannie and Freddie

ABA Position

Congress must determine the fate of Fannie Mae and Freddie Mac, the two government sponsored entities that were placed into conservatorship in 2008. Together, the GSEs own or guarantee more than half of the $10 trillion U.S. mortgage market. Because this conservatorship puts U.S. taxpayers at risk, it is important that Congress develop a plan for shrinking the GSEs’ outsize role in the housing finance market.

Without a reduction in the role of the GSEs in housing finance, private enterprise will have difficulty competing to fill the needs of the market and the threat of future crises and taxpayer-funded bailouts will remain.

ABA believes the government’s role in housing finance must be reduced and limited to ensuring access to the secondary market for lenders of all sizes with loans targeted to low and moderate income borrowers, and to ensure stability and accessibility of the capital markets in the event of a market failure.

The overarching principle should be to give banks of all sizes access to secondary market financing while ensuring that governmental entities do not compete directly with the private market. While the Federal Housing Finance Agency has made strides in reducing taxpayer exposure to the risks taken on by the GSEs, it remains up to Congress to develop a consensus on lasting broad reforms. ABA believes lawmakers should build upon the risk transfer mechanisms being developed by the GSEs at the behest of the FHFA and should take further steps to bring private capital back to the secondary mortgage market.

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