The recent accounting scandal at Fannie Mae, the government-sponsored housing enterprise, stands as a compelling reason why Congress should privatize both Fannie and its cousin, Freddie Mac.
The nation's financial markets can't afford another scandal that, next time, might bring down these two mortgage industry giants. The Securities and Exchange Commission found Fannie Mae had altered its books to avoid reporting $9 billion in losses over the past four years. (Freddie's own accounting scandal in 2003 forced it to oust four top executives and pay $125 million in fines after it didn't report $5 billion in profits.)
Fannie and Freddie together hold or guarantee about half of the nation's $8 trillion in residential mortgages. Should they lose the markets' trust and collapse, taxpayers could be forced to pick up the tab. Given their size, the fallout would make the Enron scandal and the savings-and-loan crisis of the 1980s look mighty small.
Both companies hold an unfair advantage over other lenders in the form of an implicit guarantee in a line of credit from the Treasury Department. That allows them to borrow at cheaper rates than their competitors. They're also exempt from state and local taxes.
But those crutches are no longer needed. Fan and Fred long have expanded beyond their original mission, set after the Great Depression, which was to help poorer Americans buy homes. To their own credit, they have shown other banks that low-income families aren't necessarily bad credit risks. It's time for both companies to get on a level playing field with the banks as private institutions serving their stockholders alone.