The housing-industrial complex spends so much money lobbying to maintain federal mortgage subsidies that it’s easy to forget how little they matter to the average borrower. A recent report from the Congressional Budget Office does a public service in showing how easily the U.S. could transition to a free market that doesn’t threaten taxpayers.

Last week CBO released a paper exploring various options for reform of mortgage financing. One alternative CBO studied is to allow private companies to replace Fannie Mae and Freddie...