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GSE Reform Proposal a Positive Step Towards Reducing Government Role in Housing Finance

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The Treasury Department today released a proposal aimed at reforming Fannie Mae and Freddie Mac, both Government Sponsored Entities or "GSEs." According to the proposal, the agency will support taking the two government-run mortgage giants into private ownership.

CEI senior fellow John Berlau said:

“The Trump administration’s housing finance reform plan contains many positive steps to both reduce the government’s role in the housing market and to help ensure a vibrant and competitive housing sector, including some that I recommended in my 2017 paper on GSE reform. These steps include ending the ‘Third Amendment’ that drains capital from GSEs and puts them at risk of another taxpayer bailout. The plan also recommends reducing red tape encumbering the non-GSE mortgage market, such as the Dodd-Frank financial law’s ‘qualified mortgage’ and ‘qualified residential mortgage’ provisions, which give Fannie and Freddie an unfair advantage and hold back the housing sector overall. The plan’s call for creating explicit guarantees is problematic, though, as they would likely become a floor, rather than a ceiling, for government housing support. We look forward to productive discussions with the administration and members of Congress about much-needed housing market reforms.”

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