This is like closing the barn door after the horse got out. The federal government should never have gotten into regulating the mortgage industry. Like so many other good intentions, FNMA and FHLMC were supposed to insure mortgages made by lenders to protect them from any losses due to foreclosures. They set the underwriting guidelines for lenders to assess risk such as minimum down payment, acceptable credit history, income and assets. As Congress continued to lower the underwriting guidelines more and more people were able to buy homes. It got to where these loans could be made with no income or asset verification at all and acceptable credit scores lowered (we called them no/no loans). The lenders were forced to make these loans under threat from agencies such as ACORN to prosecute lenders perceived to be engaged in discriminatory lending practices. Towards the end, lenders were making 100% mortgages. People did not have to have any money in the deal. They were given two mortgages; the first for 80% of the purchase and the second for 20%. By doing this they avoided having to get private mortgage insurance and they also did not have to collect escrows for property taxes and insurance. The interest rates at the beginning were low “teaser” rates, but within a couple of years would increase substantially. With no escrows for taxes, when people failed to pay their tax bill the result was a substantial loss of revenue to the counties and states. This is why we are in the situation we are in today. Simple modifications of these loans over five years ago would have already resolved the problem. The truly bad loans would have been foreclosed and the people who were caught in the fallout through loss of jobs would have been able to afford the payments and keep their homes.
As far as privatizing FNMA and FHLMC, how would this be achieved and how would we the taxpayers get our billions of dollars back? Or is it all just gone forever, like the General Motors bailout? The American people would have to be stakeholders in any re-organization, and the federal government would have to stop controlling the underwriting guidelines so that reasonable risk could once again be considered in making mortgage loans.