Former Massachusetts Congressman Barney Frank (D.) said subprime housing lenders Fannie Mae and Freddie Mac should be abolished Thursday in an interview on CNBC.
Frank's support in recent years for shuttering Fannie and Freddie has been a complete reversal for the former congressman who spent a large portion of his tenure in Congress relentlessly defending the quasi government entities.
The former House Financial Services Committee chairman advocated replacing Fannie & Freddie with government insured mortgages issued by private lenders:
TYLER MATHIESEN: You introduced the topic of Fannie Mae and Freddie. And Fannie Mae announcing today it is going to pay $60 billion in dividends back to the Treasury, driven in part by some accounting charges. The company got about $116 billion in bail-out money, and by the end of June it will have paid back about $95 billion of that. How would you characterize the tax payers' investment in a Fannie and Freddie and what do you think should happen to those two entities?
BARNEY FRANK: Clearly they should now be abolished. There's a long history here. I actually, I had once been a strong supporter. And one of the things that I have felt, now turns out to be truer than I [thought], namely that while they had some problems there was an underlying value in their inventory that would at least reduce our losses, and it now looks like we could come close to breaking even because of the increase in the housing market, where they did have that inventory. Some of us did try to stop the subprime lending. People forget that. Mel Watt, who the president just nominated to be the head of the agency that oversees them, in 2004 filed the bill with another Democrat to stop subprime lending and it was stopped by Tom Delay who said it was a violation of free market principles. In 2007 when I first became the chairman and we had the majority, I worked with Hank Paulson, Bush's secretary of the treasury, and we put the rules into effect that stopped the bad things, gave them the power to put it in conservatorship. I think that's pretty good. What I think should happen now is they should be abolished. And the question is, when they are abolished, they should not have been this hybrid shareholder/public sector operation, what do you replace them with? And there's a debate. Some of the most conservative free market Republicans say just abolish them and leave the housing market to its own. Almost everybody who is in the housing market, the builders or lenders, certainly consumers, think that if you are going to keep a fixed rate 30 year mortgage given the interest rate danger that a bank would have, a lender would have in making fixed rate interest for 30 years, there needs to be some insurance against rate fluctuation and the way that people are moving, I believe, some Republicans and administration and other Democrats is to have available a guarantee that can be purchased by lenders who want to have a 30 year fixed rate mortgage priced to pay for itself, not to lose money or make money. And I think that's the likeliest. they will be abolished, I hope, and they will be replaced by a mechanism whereby lenders who want to make a 30 year fixed rate mortgage will be able to buy a form of federal insurance that will guard them against the interest rate spikes.
Critics have blasted Frank since the 2008 economic crisis for lax oversight and failing to predict Fannie and Freddie's near catastrophic collapse.