Faculty Journal Articles and Book Chapters

Abstract

In recent years economists and lawmakers have debated the public costs and benefits of the two housing government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Some critics of the GSEs have even proposed making the GSEs fully private entities. Some parties involved in the debate have concluded that the costs of the GSEs outweigh their benefits, while others assert the converse. In terms of benefits, both sides consider the GS Es' contributions to lowering interest rates and encouraging affordable housing. Forgotten, however, is a difficult to quantify but important benefit that the GSEs create for homeowners -- the uniform mortgage instruments that evidence the vast majority of home mortgage loans. As this article will demonstrate, the Fannie Mae/Freddie Mac instruments are extraordinarily balanced and fair compared to other documents consumers must sign. The benefit that Fannie Mae/Freddie Mac uniform instruments provide to homeowners is a factor that weighs against privatization of the GS Es.Part II of this Article discusses Fannie Mae and Freddie Mac, their creation and evolution, their current role in the secondary market, and the development and current use of the Fannie Mae/Freddie Mac standardized forms. Part III looks at these uniform mortgage instruments in detail, and compares them to other residential loan documents and to commercial mortgage loan documents. Part III also considers typical terms of other consumer transactions that are not so balanced and explores how the problems that consumers face in choosing consumer credit make loan documents with fair terms particularly beneficial to consumers. Part IV discusses current criticisms of Fannie Mae and Freddie Mac, proposed regulatory reform, and the debate over privatization of the GSEs. Part IV also explores what role the standardization of mortgage documents by the GSEs should play in the debate. The purpose of the Article is not to weigh in on who should win the privatization debate or on where the balance of the costs and benefits of the GSEs should fall. The Article concludes, however, that the benefits of Fannie Mae/Freddie Mac standardization are a factor that must be considered in the ongoing debateover Fannie Mae and Freddie Mac.

Publication Title

Missouri Law Review

Publication Date

2007

Document Type

Article

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