23 March 2010

Fannie and Freddie Policy Statement

The Treasury Department has announced in detail the policy it intended to follow in rebooting the mortgage financing system anchored by Fannie Mae and Freddie Mac.

The bad news, is that the policies are so comprehensive that it is hard to tell in what way this differs from the status quo. The key points seem to be to create incentives to underwrite only loans that are not likely to default in the long run, to make clear when loans are federally backed, and to extract compensation from entities that benefit from federal guarantees to cover the risk undertaken.

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