Profit shouldn't drive Fannie and Freddie

"Losing Fannie and Freddie" [Editorial, Feb. 6] endorses a "private-sector solution" to the problems of these two government-sponsored enterprises, Fannie Mae and Freddie Mac. The editorial acknowledges that they did "a pretty good job" for years. The fact is that they did a much better than pretty good job for many years - Fannie since 1938, and Freddie since 1970. They made safe and sound homeownership, and its resulting net worth, possible for countless American families.

What the editorial doesn't acknowledge is that Fannie and Freddie were owned by stockholders, their shares bought and sold on Wall Street. And therein lies the problem. During the height of the housing bubble, they paid more attention to their market shares than to their missions. They cared more about their shareholders' gains than anything else - hardly an unusual posture for private-sector corporations with a public purpose.

Before the housing craziness, they both had adhered to strict, safe and sound home-mortgage underwriting standards. But when the likes of Countrywide Financial Corp. and many others were writing irresponsible mortgages for individuals unprepared for home ownership, Fannie and Freddie, with pressure from stockholders, joined the irresponsible mortgage orgy with disastrous results.

Newsday should examine the third of these government-sponsored enterprises, the Federal Home Loan Bank System, which has a similar mission as Fannie and Freddie but escaped their problems. Why? One reason is that the shares are not traded on Wall Street.

To suggest that Fannie and Freddie, after years of success, caused the mortgage meltdown is absurd. To suggest that the solution to the problems caused by their emphasizing a private-sector market share approach in place of their core mission could be cured by a new private-sector entity is contradictory at best.

On Friday, the Treasury Department suggested reducing government support for the housing market by reforming Fannie and Freddie. They should be reborn as mission-driven, not profit-driven enterprises.

Jim Morgo

Bayport

Editor's note: The writer is the former president of the Long Island Housing Partnership.