2 possibilities for expanding private sector lending

Is it time to phase out Fannie and Freddie?

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Editor's note: This is the first of a two-part series. The future of Fannie Mae and Freddie Mac, the two secondary market behemoths that became wards of the federal government in September 2008, is in limbo. Virtually all politicians on the national scene would like to get rid of them, none more than their previous political champions for whom their continued presence is a source of embarrassment. But because they purchase more than half of all new mortgages, shutting them down would cripple the mortgage market -- perhaps start a second round of home-price declines. As a result, nothing is done. While virtually everyone would like an expansion of private sector lending that would permit a phaseout of Fannie/Freddie, there is no strategy in place to bring that about. Three possible strategies are examined in this series: expansion of portfolio lending; revival of the private secondary market that collapsed during the crisis; and development of a different type of private s...