It is now more than five years since Fannie Mae and Freddie Mac were ignominiously put into conservatorships and became wards of the U.S. government — at a cost of $188 billion. They have continued to function during these five-plus years, and have even become profitable again. But it is long past time to give them a decent burial — and also to make sure that clones don't spring up to replace them.
Mortgage finance used to be largely the business of private markets. But Fannie and Freddie's expansion as mortgage investors and securitizers in the 1990s and the first half of the 2000s — and then their spectacular collapse in 2008 — has brought heavy government involvement into the mortgage markets. Recent proposals to "reform" mortgage finance would keep that extensive involvement. This would be a costly policy mistake.