This paper examines the policy issues with respect to resolving the possible failure of housing enterprises Fannie Mae or Freddie Mac. The authors compare and contrast these issues with those raised in the context of large bank failures and also identify important differences in the extant supervisory authorities. Based on these discussions, they offer a number of policy suggestions designed to minimize the cost of resolution and protect taxpayers from loss should a large bank or housing enterprise fail.
JEL classification: G21, G28
Key words: Fannie Mae, Freddie Mac, mortgages, bank failure, too big to fail, resolution, receivership
The authors would like to thank George Benston, Ray DeGennaro, Mark Flannery, Mike Fratantoni, George Kauffman, Patty Milon, Peter Niculescu, Alex Pollock, Robin Seiler, and Larry White for comments on an earlier draft of the paper. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System or their staffs. Any remaining errors are the authors’ responsibility.
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