A former regulator of Fannie Mae and Freddie Mac said nationalizing the troubled government-sponsored enterprises is a bad idea, declaring that all government insurance programs are slated to fail.
Speaking last week at a National Mortgage News conference on distressed assets, James Lockhart said the "right answer" is to privatize Fannie and Freddie, but he acknowledged that accomplishing such a task is nearly impossible right now since the government controls nearly 100% of the residential market and 80% of the multifamily sector.
Lockhart, who left the Federal Housing Finance Agency about a year ago, suggested breaking up the GSEs into two separate companies, not on a good bank/bad bank model, but rather what he called a new company/old company model.
He said that Democrats in Congress were correct in not including the resolution of the GSEs in the financial regulatory reform bill. Lockhart said it would have made negotiations "messier" and that it's smarter to wait for a "calmer day." The two have been in conservatorship since September 2008.
Another former GSE regulator, Stephen A. Blumenthal, has come out in favor of nationalizing the two companies. In an op-ed published Tuesday in The Wall Street Journal, Blumenthal, a former deputy and acting director of the Office of Federal Housing Enterprise Oversight (the FHFA's predecessor), said Fannie and Freddie should be returned to their original status as official government agencies. "We must accept the fact that keeping the mortgage market liquid is so important to our economy that it must be guaranteed by the government," he wrote.