Prof. Dwight Jaffee Testifies in Congress on Fannie Mae and Freddie Mac
June 12, 2013
Private markets should take over government-sponsored enterprises Fannie Mae and Freddie Mac's role in guaranteeing against mortgage borrower defaults, Professor Dwight Jaffee told members of the House Financial Services Committee in Washington, D.C., Wednesday.
"Experience indicates new government mortgage guarantee program would again leave taxpayers at high risk, while creating little or no sustainable increase in American home ownership," said Jaffee during hearings on reforming the U.S. housing finance system.
Jaffee provided details on how Fannie and Freddie have had little impact in expanding U.S. home ownership rates and suggested that their ability to offer a slightly lower interest rate on conforming loans because of their implicit government guarantee was simply "crowding out" the private markets from offering conforming loans.
Jaffee also drew a comparison to Western European countries, which are prohibited by European Union rules to create government sponsored entities like Freddie and Fannie.
"The results show the European countries outperforming the U.S. on virtually every measure of housing and mortgage market performance," Jaffee said. "Perhaps the most stunning result is that the U.S. home ownership rate equals only the average of 15 major Western European countries."
Topics: Faculty News