Let’s separate shareholder issues from policy decisions on housing finance

I attended a panel of odd bedfellows this morning: Theodore Olson and Ralph Nader leading off a panel on the future of the GSEs put together by Shareholder Respect. The underlying theme I could extract from the wandering discussion was an appeal to fairness asking that Fannie Mae and Freddie Mac shareholders be treated like other shareholders who received a government bailout, and therefore (here’s the most problematic part) Fannie Mae and Freddie Mac should be recapitalized and put back in business as before. If I took anything away from this roundtable, it was a reminder to keep shareholder issues separate from the critical decisions this country needs to make on housing finance reform.It doesn’t take many logical steps to see that conclusion:

1. Courts will decide whether shareholders are due some compensation. That’s not for public opinion, bloggers, Congress, or public officials to decide. Since lawsuits have already been filed, the process is under way.
2. Damages get settled by someone writing a check, not by changing housing policy. If courts determine that Fannie Mae and Freddie Mac shareholders were wronged, they can order the federal government to pay damages. Forcing the government to re-establish a particular form of housing finance in order to pay back shareholders puts the cart before the horse.
3. Suing the federal government takes a long, long time. The government has virtually limitless ability to litigate and appeal. Suits can take decades (anyone remember ELIHPA and LIHPRHA? Some of those lawsuits from the 1980s took decades to resolve).
4. We need housing finance reform now to create a durable housing finance system. Access to home mortgages is still too tight, multifamily production is still capital constrained, and the government is still playing an outsized role in the mortgage market. We can’t wait for these lawsuits to be resolved before moving forward, particularly when there is broad agreement among the housing community on the principles for reform.

So let the shareholders and the government litigate their claims. Just don’t let that get in the way of fixing the mortgage finance system.