12 Steps to Solving Our Biggest Housing Problem

Let's face it, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) aren't normal, profit-maximizing companies anymore. Not by a long shot.

If you were under any illusions to the contrary, all you have to do is read through Fannie's most recent annual report. The report describes Fannie's mission as:

Our public mission is to support liquidity and stability in the secondary mortgage market and increase the supply of affordable housing. In connection with our public mission, FHFA, as our conservator, and the Obama Administration have given us an important role in addressing housing and mortgage market conditions. As we discuss below and elsewhere in "Business," we are concentrating our efforts on keeping people in their homes and preventing foreclosures while continuing to support liquidity and stability in the secondary mortgage market.

Of course, if you happened to peek at Fannie's or Freddie's most recent balance sheets you might wonder how in the world these entities can possibly afford to pay the SEC's filing fees, let alone support the housing market. Both entities' financial statements reveal stinking, bloated, decaying balance sheets that appear to belong to something large and long-dead. Yet somehow these gargantuan zombies shuffle on, untouched by financial reform and undeterred by the trillions in assets teetering atop negative equity.

But why do they continue on?
From what we're told, the housing market needs them. Apparently, without the government-endorsed funny money that pumps through the veins of Fannie and Freddie "too big to fail" banks like Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) would be "too scared to lend." Already hurting homebuilders like KB Home (NYSE: KBH) and Toll Brothers would find it even harder to sell their newly built homes. And heck, everyone from Fortune Brands (NYSE: FO) to Target (NYSE: TGT) would end up hurting as people quit buying homewares.

In other words, it would be positively apocalyptic. Or at least that's what Congress tells us. And they're never wrong.

Jonesing for some sweet GSE
I've heard all the arguments in favor of keeping Fannie and Freddie around and I have to say that it sounds an awful lot like the poor housing market may be addicted to these government-supported entities (GSEs). All the major addiction red flags are there, folks. Just take a look at some of the signs of drug addiction listed by the Mayo Clinic:

• Feeling that you have to use the drug regularly.
• Failing in your attempts to stop using the drug.
• Making certain that you maintain a supply of the drug.
• Spending money on the drug even though you can't afford it.
• Doing things to obtain the drug that you normally wouldn't do, such as stealing.
• Feeling that you need the drug to deal with your problems.

You may say, "Well, nobody's stealing to feed the housing market's addiction to Fannie and Freddie." But has anyone really asked taxpayers whether they like the idea of $145 billion of their hard-earned money being thrown down the deep, dark hole that is the GSE balance sheets? I didn't think so.

So yeah, it looks to me like we've got a pretty classic case of addiction on our hands.

All is not lost!
Fortunately, there may be a way out. Back in 1939, Alcoholics Anonymous introduced the world to 12 steps that have released many an addict from their demons. I think with some slight tweaks it can help us here as well.

Housing market, repeat after me.

1. We admitted that we were powerless over Fannie and Freddie, that their inflated balance sheets had become unmanageable.
2. Came to believe that capitalism could restore us to sanity.
3. Made a decision to turn our battered market over to capitalism.
4. Made a searching and fearless inventory of our horrific lending decisions.
5. Admitted to Congress and ourselves the exact nature of our screw-ups.
6. Were ready to have Congress return us to capitalism.
7. Humbly asked Congress to remove its overreaching, grubby hands from the marketplace.
8. Made a list of all of those harmed due to the implosion of a badly manipulated market and became willing to make amends to them all.
9. Realized that proper amends would be impossible, so we moved on.
10. Continued to take a market inventory and realized that a capitalist system wouldn't be nearly as forgiving of mistakes and idiocy as a government-manipulated system.
11. Sought through sound lending and healthy competition to become a more legitimate market.
12. Having had a spiritual awakening as the result of these steps, we tried to carry the message to other government bodies eager to put their hands where they don't belong.

Don't despair, housing market, I know it'll be tough to complete these steps, but it all begins very simply: by admitting you have a problem.

Think the housing market has what it takes to kick its addiction? Head down to the comments section and share your thoughts.

I hate the GSEs, but boy do I love dividends!