Analysts React to Treasury’s Plan for Reforming Housing Finance System
Alex Pollock, R Street Institute Finance Senior Fellow and former CEO of the Federal Home Loan Bank of Chicago
“The important parts of the Treasury’s new paper on Fannie and Freddie reform are not the legislative recommendations, since legislation is not going to happen. They are the administrative steps that can actually be taken now, with political will.”
The steps that can be taken now, said Pollock, include:
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Increased capital requirements for Fannie and Freddie, under which the same risks, whether taken by private institutions or by Fannie and Freddie, have the same capital protection
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Removing regulations which especially favor Fannie and Freddie over other competitors
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An ongoing fee from Fannie and Freddie to the Treasury to pay for the taxpayer credit support without which Fannie and Freddie could not exist
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Rewarding the taxpayers for their bailout of Fannie and Freddie by having Treasury exercise its warrants for 79.9% of Fannie and Freddie’s common stock. Since the exercise price is one-thousandth of a cent per share, this will be a nice and well-deserved profit for the taxpayers