Ah yes, the difficulty of sarcasm over the Internet. All kidding aside, you're absolutely right that Fannie and Freddie shouldn't care about whether banks earn

Ah yes, the difficulty of sarcasm over the Internet. All kidding aside, you're absolutely right that Fannie and Freddie shouldn't care about whether banks earn money trading mortgage bonds. I didn't mean to imply that banks, traders, or any other mortgage market participants deserved special treatment from the government, because they don't. Fannie Mae, Freddie Mac, and to a lesser extent Ginnie Mae play an important role in the mortgage market, and it's worth thinking twice before saying they should be allowed to go under. The market in their mortgage-backed securities (MBS) has led to substantially lower mortgage rates, to easily refinanceable mortgages, to a wide variety of types of mortgages: fixed year mortgages of all time periods, ARMs, balloons, etc. And while things were certainly taken too far, the government mortgage agencies allowed many deserving homeowners to take out mortgages that individual banks wouldn't have been willing to give. I don't think it's in the best interest of the country to go back to the old model of mortgage origination. That being said, I do think that Fannie and Freddie should really change the way they do business. Right now they perform two roles: that of a monoline (i.e. an insurance company), and that of a REIT. The monoline is what's important: by buying mortgages, taking a cut of the monthly payments as an insurance premium, and then packaging the mortgages in easily tradeable securities, they promote a smoothly functioning mortgage market. The REIT part is where they borrow money at extremely advantageous rates and invest it in their own MBS, like the original article talked about. The idea behind letting them operate as a REIT is that by buying large amounts of MBS, they would support their price, promote lower primary mortgage interest rates, and make housing cheaper for the nation as a whole. That's fine as far as it goes, but there should be stricter requirements on the size and riskiness of its portfolio. Earlier this year when private mortgage funds like Carlyle and others were blowing up, Fannie and Freddie should have been required to raise more capital and reduce purchases of new mortgages. But they weren't, and now we're in the mess we see now.