Washington Wades Deeper into Housing

Congress taps Fannie and Freddie for cash and expands the Federal Housing Administration's reach

Lawmakers began 2011 with sweeping ambitions to shrink the U.S. government’s involvement in mortgage finance. They ended the year enacting policies that increase it. An 11th-hour extension of the payroll tax cut, signed into law on Dec. 23, will for the first time divert funds from Fannie Mae (FNMA) and Freddie Mac (FMCC), the two mortgage finance companies under U.S. conservatorship, to pay for general government expenses. Congress also took steps that are likely to increase the role of the Federal Housing Administration in the market—at the same time that the agency’s reserves hit a record low. And some economists are charging that the FHA’s finances are even worse than they appear.

Last February, Treasury Secretary Timothy Geithner announced three options for reducing government’s role in housing finance. Soon after, Republicans introduced bills to wind down Fannie Mae and Freddie Mac, which have cost taxpayers about $153 billion since 2008 because of defaults on loans they guaranteed. The legislation never advanced because there was no agreement even among Republicans on the best way to proceed.

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