Privatizing Fannie Mae and Freddie Mac: An operating restriction may be enough to increase competition and efficiency

Fannie Mac and Freddie Mac support nationwide access to residential credit through two distinct lines of activity: (1) buying and holding of mortgages and (2) securitizing mortgages and selling them as mortgage-backed securities. In 1992, the U.S. Congress discussed the feasibility of fully privatizing Fannie Mae and Freddie Mac. After reviewing the arguments for and against privatization, the author suggests that it might be best to Privatize the two enterprises half way, namely, by privatizing over to the private sector only the securitization functions of Fannie Mae and Freddie Mac.