There are a bunch of ideologues out there with solutions to the Fannie and Freddie situation. They argue that government intervention has to end and then propose a system with a permanent role for government. It is not just nonsensical – it is usually in the interest of some large financial institution. All they want is Frannie out of their part of the business. They like government subsidies in the rest of their business.
Anyway I have the free market solution to the Fannie and Freddie situation – and – I hate to say it – it is dead obvious.
Answer: raise Frannie’s pricing.
At the moment there is nobody doing conforming mortgages except Fannie and Freddie. Indeed there is almost nobody doing mortgages of any kind except Fannie and Freddie. If the free market wants the business they can have it. (They just don’t want it at this sort of interest rate spread – and I don’t blame them.)
---Josh Hempton via Yves Smith More good stuff at link. My italics. I've made the point in italics before.