Housing reform is still too hot to handle for members of Congress getting ready to ramp up their campaigns for re-election. The issue has also seemed to lose some steam as Fannie Mae and Freddie Mac started churning out profits for the federal government due to an improved housing market and money from legal settlements with bankers. Though many would say that the crisis has now passed, this is precisely the time to get serious about a reform effort. To accomplish true reform, we must take into consideration something that has been conspicuously absent from the debate: the future of the Federal Home Loan Bank system.

To reform Fannie and Freddie without also reforming the FHLB system is to forget the push-pull dynamic in the lending market. Home Loan banks perform an essential function by providing low-cost funds to financial institutions in the form of advances. This promotes lending and pushes dollars into the economy. Fannie and Freddie then pull that funding through the economy using their loan purchases, guarantee programs and securities. It is simply a pipeline with a number of access points. If you want to better manage the flow of oil through a pipeline while preventing a spill and controlling your maintenance costs, simplify the number of inputs and outputs.

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