Chapter 13: Fannie Mae and Freddie Mac (Mandatory) Many economists link the 2008-2009 mortgage crisis and housing market slump to Fannie Mae and Freddie Mac lending practices that started in the mid 2000s. Others linked the crisis to inadequate oversight by federal regulators. And, still others attempted to connect this crisis to federal legislation passed under the Clinton Administration that aggressively promoted low income loans. Furthermore, there has been increasing level of political debate that Fannie and Freddie should be abolished. What is your opinion: should Fannie and Freddie be abolished? Justify your comments.

Fannie Mae and Freddie Mac

he Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) should not be disbanded or reconstituted as a single state mortgage guarantee agency due to its significance. First, the initiative is to assist the financial products in mortgage market due to the conforming loan standard that subjects lenders to produce products and make loans that conform to the needed measures. Notably, this is a good thing since standardizing complex financial products assist customers to come up with detailed decisions (Frame & White, 2005). Even though, the standard has not made mortgages to be entirely accessed by clients since there are still viewed as confusing.

Secondly, through its detailed once implicit, now explicit state government-backed engagement in the mortgage environment, Fannie and Freddie strategically reduce the cost of home ownership thus encouraging a majority of home ownership, and few renting than would otherwise happen. Several economists including those who fight for the abolishment of Fannie and Freddie typically acknowledges this as a noble cause (Frame & White, 2005). It is also significant to highlight that homeowners take substantial care of their homes as opposed to the renters and are effectively more actively engaged in their societies. The United State is considered as unique among other peer countries in having a mortgage market that is consequently conquered by long-term fixed-rate loans as this is enormously contributed by the destruction of the market by this initiative together with the stable client preferences. Therefore, in a personal opinion, Fannie and Freddie should not be peeled off due to its significance in the mortgage market.

Reference

Frame, W. S., & White, L. J. (2005). Fussing and fuming over Fannie and Freddie: how much smoke, how much fire?. Journal of Economic Perspectives, 19(2), 159-184.