Who said we should take it slow and be careful with reforming Fannie and Freddie because we don't want to break anything? Not Rep. Barney Frank, D-Mass., but instead, several Republican congressmen apparently abandoning their bid to reform the two government-sponsored enterprises (GSEs) in a mere two years. Apparently they're forgetting that voters weren't voting for a change of heart:
“We recognize that some things can be done overnight and other things can't be,” said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. “You have to recognize what the impact would be on the fragile housing market as it stands right now.”
Alas, Garrett and other Republicans are now faced with the idea of Governing which mandates that they Moderate Their Tone and seek Bipartisan Consensus. At the Atlantic, Dan Indiviglio thinks positively:
The Tune Hasn't Changed That Much
In reality, however, Republicans' views on F&F and housing policy in general haven't changed that much. Even though there might appear to be a significant policy shift above, there really isn't. Republicans still broadly want to do away with the F&F. Most of those calling for their swift dissolution were on the fringe, and some of them won't change their view. More moderate Republicans will merely shift their expectations for how long it will take. Saying that F&F should be completely eliminated over a 10 to 15 year period versus a two to five year period isn't really a change of philosophy, but a tweak in policy.
What They Must Do in the Meantime
Since F&F can't be eliminated overnight, Republicans need to take the next year or two as an opportunity to pave the way for a housing market that isn't dependent on the two companies. That means they need to begin changing regulations to encourage the private market to begin stepping into the market. The WSJ article mentions that one step in doing so might be to lower the mortgage size that F&F can guarantee. Private lenders might be more willing to take the risk for mortgage of wealthy borrowers with large down payments. Another step could be to change regulations to create a robust covered bond market in the U.S., which is something that Rep. Garrett was pushing for during the financial regulation debate.