Fannie and Freddie are Bankrupt, But Indispensable to Propping Up Market

04-25-2010 • NYtimes.com/

Since their bailout, in September 2008, Fannie and Freddie have become more, not less, important to the U.S. housing market. At present, 9 of every 10 new mortgages are sold to, or guaranteed by, arms of the U.S. government, the majority of them to Fannie and Freddie. Which is to say, without Uncle Sam, it is not clear that the private market for housing would even exist. But retaining Fannie and Freddie in their present form is unpalatable; government support of the mortgage twins was among the original sins of the financial crisis. It stemmed from the country’s affection for homeownership — a legacy of a frontier nation that subsidized homesteading for pioneers and encouraged later generations to homestead in the suburbs via the mortgage-interest deduction. Renting was disfavored; federal policy encouraged ownership. But the policy was wrapped around the fiction that federal support promoted self-reliance rather than dependence.