“To compensate taxpayers for taking on housing risk, Fannie and Freddie would pay an actuarially fair fee to the government in return for the guarantee”

This sounds like it might end up similar to the PBGC “guarantee” with Congress setting “actuarially fair” (low ball) fees and providing a false sense of security for taxpayers. How great is the risk that politics triumphs over good policy with this proposal?

Would breaking up Fannie and Freddie into units large enough to compete efficiently and effectively while transforming the system from “too big to fail” to “too small to require a Federal bailout in order to guard against systemic risk” make more sense? A market with smaller firms may spontaneously create a private insurance market, sparing future taxpayers from the risk caused by the all too familiar moral hazard caused by government guarantees.

Given the tendency for politics to triumph over policy in Washington DC, I suspect any proposal that connects mortgage guarantees to the taxpayer will eventually impact the taxpayer negatively.

Best regards,
Scott