The Politics of Housing Finance Reform in America: The Uncertain Future of Fannie Mae and Freddie Mac

Abstract

As public-private financial institutions, Fannie Mae and Freddie Mac were originally chartered to protect the American dream. In 2008, home prices reached peak inflation and elicited the implosion of the American housing market. Fannie Mae and Freddie Mac were vilified as perpetrators of the housing collapse and proprietors of egregious amounts of debt and human suffering--byproducts of our system's failure. This, along with their hand in the toxication of mortgage-backed securities, solidified Fannie Mae and Freddie Mac's deep involvement in the mortgage meltdown that shocked the nation. Additionally, the traumatization of the housing market provoked an immense amount of distrust in Fannie Mae and Freddie Mac, as institutions, leaving many politicians and Americans alike questioning their ability to fulfill their functions and duties to the American people. Near insolvency placed Fannie Mae and Freddie Mac under government control. What, at the time, was prescribed to be a short-term solution. Today, the two entities remain under the watchful eye of the government. There has been little legislative progress to reform the system since the relationship between the government and Fannie Mae and Freddie Mac changed in 2008. This disquisition, in its entirety, will examine why housing finance reform has resulted in perpetual inaction. Unwavering political pressures have created a unique political stalemate surrounding the housing finance reform debate. Ranging from protective undertones of homeownership to the political involvement of highly invested stakeholders in the industry, the housing finance debate is nuanced and laced with complexities. Exploring the depths of these complexities is not only important to understanding the politically enigmatic characteristic of the American housing finance reform debate, but also to understanding the central role that Fannie Mae and Freddie Mac play in the American economy.