Reiss on Government Sponsored Enterprises

Brooklyn Law School Professor of Law David Reiss recently posted The GSE Guarantee Fee as a Policy Tool on SSRN. The abstract reads:

Setting Fannie Mae and Freddie Mac’s guarantee fee rates can have a large impact on the housing market. Setting the rate too low can negatively impact the financial health of Fannie and Freddie. It can also have a positive impact on housing prices because it reduces the overall cost of credit. On the other hand, setting the rate too high can generate excess revenues for the two companies. This would impact Congress’ plans for them as well as possible outcomes for the investor lawsuits arising from the GSE’s conservatorships. And it would also have dampening effect on housing prices, as it would increase the cost of mortgages. While the Federal Housing Finance Agency should consider the broad policy impacts when determining the guarantee fee rate, its main goal should be to set the rate at a level that properly accounts for the guarantee risk borne by the two companies.