Ex-FDIC Chair: Reform Push for Fannie and Freddie 'Falling Apart'

Friday, 16 May 2014 09:06 PM

By Sean Piccoli

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Financial consultant and former FDIC Chair William Isaac isn't dismissing entirely the prospects for a bipartisan bill that would close down the federal government's troubled home-loan behemoths, Fannie Mae and Freddie Mac.

"The consensus for reform seems to be falling apart, though," Isaac said Friday on Newsmax TV.

The Senate Banking Committee approved the legislation on Thursday by a 13-9 vote, sending it to the full Senate for debate. Politico reported there is "little chance" the bill will get through Congress in this election year.

But Isaac told "America's Forum" host J.D. Hayworth that he's "not sure" how Congress will proceed or if the Obama administration will agree to eliminate two agencies that figured into the housing collapse and financial crisis.

"I do know that the Obama administration said shortly after the crisis — and that has been their position all along— that we really need to do some major reforms with Fannie and Freddie," Isaac said. "They said that was a priority."

Whether "major reforms" translates to "closure" in the mind of the administration isn't clear. For Isaac it's the most sensible step.

"We're the only country in the world that has these enterprises and everybody else seems to be doing just fine without them," he said. "There's no question in my mind that Fannie and Freddie were huge contributing factors in the financial collapse we had in 2008-2009, and we desperately need to reform them."

Story continues below video.

Isaac said the best approach is to draw down Fannie and Freddie in stages— which the Senate bill does— and return that loan activity, or most of it, to the private sector— which the Senate bill does not.

"We can't do everything at once but it seems to me that a relatively simple way to wind them down is to keep on lowering the size of loans that they could deal on," he said.

"Right now they're up somewhere around $750,000. I would lower that by perhaps $100,000 a year until they really have no authority to be dealing with guaranteeing these loans anymore.

"The private sector can take care of this quite well with the possible exception of subsidized housing," he said. "Maybe for veterans, maybe for other folks, we really want to have a subsidized housing program. If that's the case, then the Congress ought to do that online, authorize the subsidies, have a budget for it, and hold people accountable."

The Senate bill has its critics: the Competitive Enterprise Institute called it a "monstrosity" that simply steers the two agencies' money and authority into another government agency.

Isaac's concern is that some Democrats who plainly want to keep Fannie and Freddie intact also want to ease lending: "They were talking about going back to the bad old days— lower down payments, lower interest rates— making it more possible for more Americans to own housing. And that hasn't worked in the past. It led to this massive crisis we had.

"And here they are, they want to do it again."

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