Anthony B. Sanders (2005) survey in measuring the benefits of Fannie Mae and Freddie Mac to consumers. Measuring the benefits to consumers from Fannie Mae and Freddie Mac activities has received considerable attention, particularly in recent months. Fannie Mae and Freddie Mac provide benefits to consumers such as lower mortgage rates, increased liquidity for the mortgage markets, improved access for homeowners to mortgage markets, improved homeownership rates, greater stability in mortgage credit flows and in economic growth, besides it ability to provide liquidity in financial crisis of Fannie Mae and Freddie Mac.
Recently, Federal Reserve Board Chairman Alan Greenspan commented in his U.S. Senate Banking Committee testimony on the Government…show more content… government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets.
We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions taken, in terms of five objectives that we argue an optimal intervention would have fulfilled. We conclude that the decision to take the firms into conservatorship and invest public funds achieved its short-run goals of stabilizing mortgage markets and promoting financial stability during a period of extreme stress.
However, conservatorship led to tensions between maximizing the firms’ value and achieving broader macroeconomic objectives, and, most importantly, it has so far failed to produce reform of the U.S. housing finance system. The public actions taken to support Fannie Mae and Freddie Mac were successful in their short-term aims of supporting the housing market and removing the two firms as an immediate source of systemic risk to the financial
