Huntsman: Shut Down Fannie and Freddie

If GOP presidential candidate Jon Huntsman had his way, there would be no Fannie Mae or Freddie Mac.

According to his 9-point plan for financial overhaul released Monday, Huntsman would "shut down" the government-backed mortgage giants and sell off their assets, a move he says "should not be controversial."

Controversial or not, Fannie and Freddie still purchase more than 90 percent of new mortgages today, in large part due to the private sector's aversion to housing finance in the wake of the housing market meltdown. Many argue that the housing market simply cannot stand on its own without the government's support.

[Read: Federal Housing Administration Could be the Next Housing Bailout.]

But Huntsman argues that the nearly nonexistent involvement of the private sector isn't because there's no private market for home loans but is a result of the government crowding out the private sector.

It's "an illustration of a private sector forced to cede the field due to an inability to compete with state subsidies," according to Huntsman's plan.

The plan seeks to revive genuine competition in the housing finance market, with "no one having the political or economic power to extract subsidies from the government."

[See a slide show of 6 ways to fix the housing market.]

Reintroducing the private sector into the mortgage market is something most politicians support, but due to their gigantic footprint in the market now, Huntsman admits Fannie and Freddie can't be dismantled and a purely private market established overnight. Doing so would "result in new systemically risky too-big-to-fail private sector institutions."

Instead, an intermediary would be established to sell off Fannie and Freddie's assets, a winding-down process Huntsman says would take several years.

What do you think? Should Fannie and Freddie be abolished? Leave your comments below.

mhandley@usnews.com

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