A movie that many people associate with this time of year, the 1946 release “It’s a Wonderful Life,” allows us to see the state of the world both with and without protagonist George Bailey (played by Jimmy Stewart).

George works at Bailey Bros. Building and Loan, originating mortgages for families that want to own their own house and home. He starts Bailey Park, an affordable-housing community, which irritates Henry F. Potter (depicted by Lionel Barrymore), the richest man in town.

This film also gives George the opportunity to see what the world would be like if he had never lived. Bedford Falls is now Pottersville, anarchy reigns, rents are sky-high and only the 1 percenters have a wonderful life. I, for one, prefer Bedford Falls over Pottersville, Bailey Park over Potters Field!

Fannie Mae has, since 1938, bought mortgages from mortgage originators and sold them as securities, thereby broadening access to home mortgages and affordable rental housing to more Americans. Freddie Mac was created in 1970 to expand the market for these securities.

It’s not too much of a stretch to say that these government-sponsored entities work with companies like Bailey Bros., creating a mortgage system that reduces the cost of mortgage capital.

Affordable housing remains a major problem in America for the less fortunate among us, but a recent proposal by Clinton administration economist Robert Shapiro and Brookings scholar Elaine Kamarck could reduce the current shortage of affordable housing by about 20 percent. National affordable-housing trust funds already exist, but the proposal would greatly expand the funding that would be available to support affordable housing in Maine and other states.


Shapiro and Kamarck call for transferring ownership of 79.9 percent of Fannie and Freddie to the National Housing Trust Fund and the Capital Magnet Fund. The federal affordable-housing trusts would, over time, sell their warrants into the market and use the proceeds, which are estimated at $100 billion, to endow their efforts to support access to affordable housing for even very low-income households.

If this works as anticipated, the result would be a 12-fold increase in funding for state housing programs. For Maine, this could mean about $205 million of additional funding over 20 years (annual average of about $10 million). About 90 percent of the Housing Trust Fund’s non-administrative funding supports affordable rental housing. The Capital Magnet Fund provides grants to nonprofit entities.

In 2008, severe systemic financial shocks led to Federal Reserve and government interventions to stabilize financial institutions to prevent – or at least mitigate – the severe economic consequences that might otherwise have occurred. One of these actions was the seizure and conservatorship of Fannie and Freddie, with the two playing an important role in stabilizing the market for mortgage-backed securities. These interventions proved to be extremely beneficial to the U.S. economy.

Fannie and Freddie were de facto nationalized in 2008 under an agreement between the U.S. Treasury and the Federal Housing Finance Agency. The deal gave Treasury what’s called a warrant to buy 79.9 percent of the stock in Fannie and Freddie at any time. (The two are investor-owned companies, albeit currently under government control.) Fannie and Freddie drew $187 billion from the Treasury and have already repaid about $235 billion. What do we do next?

Treasury controls the future of the Federal Housing Finance Agency. The financial integrity of Fannie and Freddie is now on a “knife edge,” with the possibility that a loss in one quarter in the future might require a draw on the Treasury, which would be politically unpopular.

A key question is: What should be done with the Treasury’s warrant? My answer is that the Treasury should shift its warrant to the two affordable-housing trusts, which could sell shares in Fannie and Freddie gradually into the stock market, raising capital that would support affordable housing in America.

“It’s a Wonderful Life” suggests that the world of Bedford Falls would have turned into Pottersville but for the presence of one man, George Bailey. On a more prosaic note, expanding the role of the Housing Trust Fund and the Capital Magnet Fund programs would, for many low-income Americans, mean the chance for a better life.


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