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Chapel Hill, N.C. — Regulators and policymakers should avoid making premature long-term decisions about the structure of Fannie Mae and Freddie Mac in the aftermath of the federal government’s decision to take them into conservatorship, the University of North Carolina at Chapel Hill’s Center for Community Capital recommends.

With market confidence restored by the government takeover, policymakers now must turn their focus to American homeowners, who rely on the two largest mortgage buyers in the world.

“So far, the government’s actions have concentrated on bondholders, shareholders and taxpayers, which is important,” said Center director Roberto G. Quercia. “But a solution to the current crisis will not be possible until we deal with homeowners and the growing stock of foreclosures. Long-term, investors will be better off if we keep people in their homes. ”

August alone saw more than 100,000 foreclosures nationwide. Adding to the inventory of repossessed properties hurts both homeowners and the communities that surround them, Quercia says. “Bringing stability and confidence to financial markets ultimately depends on bringing stability in the housing market by minimizing home losses and providing access to safe-and-sound affordable mortgages.”

With the Federal Housing Finance Agency now at the helm of these two entities, the government controls close to half of the outstanding mortgages in this country. Officials and policymakers, Quercia says, can prevent further deterioration in the home mortgage market by:

  • Proceeding aggressively to stave off defaults and promote sensible lending. The Center’s research has demonstrated the value of working with troubled borrowers to keep them in their homes. Authorities can best achieve these goals by pursuing widespread loan workouts and modifications and fostering responsible and affordable lending going forward.
  • Proceeding with caution in restructuring the agencies. Fannie and Freddie have provided access to long-term fixed rate mortgages at a scale unrivaled anywhere else in the world. This has been critical for low- and middle-income home buyers by providing them with stable, affordable means to buy and maintain their homes. The Center’s research on lending to low- and moderate-income households underscores how this type of lending is both viable and sustainable when done responsibly. By contrast, the boom-and-bust subprime market has demonstrated that the private sector has done a poor job of serving lower income and minority markets.

“The credit crisis was not created by Fannie Mae and Freddie Mac,” Quercia says. “Reckless lending by mortgage originators and poor regulation by the government contributed to a house price bubble and over-leverage by many households. Fannie and Freddie’s core functions of providing liquidity and affordability is still as critical to the functioning of the market as ever.”

Promoting responsible mortgage lending is a key area of research and analysis for the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. The Center’s in-depth analyses help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively. For more information, visit or call (919) 843-2140.

Topics(s): Affordable Homeownership, Housing Policy, Mortgage Finance
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