Fannie and Freddie Are Shrinking
It seems the mortgage business might not get more complicated than the mess it already is. At least for a little while. In the latest directive from the supervisor in charge of Fannie and Freddie, they won’t be allowed to introduce new loan products into the market. This is in an effort to control the organizations’ reactions to the expiration of the Federal Reserve’s mortgage purchase program next month.
The FHFA has taken it as its role to control and reduce the two organizations. Its stated goal is that the two should not be substantial movers or portfolio holders in the recovering market. More important than expansion, should be loss mitigation. The FHFA argues that since the two exist only due to a taxpayer buyout, the taxpayers shouldn’t be exposed to further risk.
Do you agree?
Both organizations have had to borrow heavily from the federal government, in excess of $100 billion. The head of the FHFA called those numbers “troubling.” Apparently Fannie and Freddie will stick with tried and tested programs to recoup losses in the future.
The only hole in the argument seems to be following: even the FHFA admits that almost all non-governmental organizations have withdrawn their capital from the housing market. Fannie and Freddie have invested more. If they now begin to reduce their exposure, who’s going to fill the void? What if private capital and investment doesn’t replace them in the market?
(I can’t resist throwing in this little tidbit: the CEO’s of both Fannie and Freddie are being given $6 million bonuses each for their roles in stabilizing the housing market. Two points:
1) Stabilizing? Have we really, officially recovered?
2) Aren’t they also responsible for the crisis?
You know the old saying: you break it, you buy it. I never “you break it, we buy it!”
I am not an expert on Fannie and Freddy however it seems to me that if they are responsible for the current crisis, they certainly should be not only controled and monitored but also re-structured on their operations and recovery efforts to make sure that their functions are channeling toward a plan that will pull us out of this mess they got us into, I do not think rewarding them for their bad behavior is the answer and I believe that 6 million needs to be money going to the restructure of the recovery operation with a fine tooth comb or a microscope which ever is the clearest! Yes I agree if you break it YOU buy it!!!
I also don’t know much about Fannie & Freddie, if however they are not buying foolishly, wouldn’t it be a good thing? I agree with Sharie H. that $6MM in bonuses is way too much and should go into the recovery operation in addition to if YOU break it YOU buy it!
Likewise, i am no expert on Fannie or Freddie, but it would seem that not being able to experiment with new loan products is a good thing. After all, it was changes in loan products that caused this mess.
I wouldn’t be too worried about private capital in the housing market. The banks will be back soon. After all, they are in the business to make loans.
As far as bonuses are concerned, I think it is high time that Congress take responsibility by passing legislation that would prevent financial institutions from giving bonuses to executives when their actions have caused their businesses to lose money.
Craig S., California
The main problem with the Government’s involvement in backing mortgages at all, is that the politicians cannot help themselves but use these institutions to help them buy re-election as they tout homeownership statistics and the affirmative action pressures they have applied to banks to “pay back” their constituents and retain power.
The fix to this is not going to be easy as every homeowner who gets foreclosed on or even does a short sale is one less home buyer in the market to reduce the glut of inventory that keeps driving values lower. At some point the government is going to have to step back in to create incentives and exceptions for less than creditworthy buyers or the markets will resume their downward slide. Especially with 10%+ unemployment the supply of distress properties will continue to grow as the economy heads into the 2nd “dip” of the double dip recession we are headed for with the current jobless “recovery” we are in.
The only other alternative is massive foreign investment in our real estate markets which has already begun to happen, but will it be enough to stabilize the values? Only time will tell.
It is ironic that Barney Frank now wants Fannie and Freddie to be put out of business since he was one of the main instigators of lobbying both institutions to relax their guidelines. I am in the mortgage business and he is killing us with his proposed regulations and lack of subject knowledge in the lending area. Granted Fannie and Freddie have made their mistakes but much of it from coaxing by people on the Hill like Frank a few years back.
Well how soon we forget, Freddie and Fannie have been rife with corruption for years, they get caught, someone takes the heat and back in business they go. More important is who will get caught with their hand in the crookie jar next?
This is from April 2009
Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that as part of its ongoing investigation of the government’s role in the financial crisis it has uncovered new documents. The documents show that members of Congress for years were aware that Fannie Mae and Freddie Mac were playing fast and loose with accounting issues, risk assessment issues and executive compensation issues, even while liberals in Congress continued to block attempts to regulate the two Government Sponsored Enterprises (GSEs).
Dave E. Seattle, you are so right and Barney and his ilk were the foxes watching the hen house. He and his cronnies testified repeatedly b4 Congress that Fannie and Freddie were fiancially healthy, while taking $ to suppress the truth to everyone to avoid legislation to help avoid the avalanche of mortgage problems that everyone knew was to come. He has the ability as most who were responsible in Congress to talk out of both sides of his mouth. The govt isn’t going to fix this problem. The investors didn’t cause the problem and it is going to take to people to fix the problem, wiithout the intervention of the govt.
I am glad they are slowing down on new products. The products they rolled out in the early 2000’s is half of the reason we are in this mess right now anyways. In my opinion fannie and freddie should be out of business. Politicians should not be overseeing financial institutions, when has that ever worked?
I think the market should correct itself. We are mortgaging our childrens and childrens childrens future. Congress just passed a 1.7 trillion dollar debt package. Staggering that those who got us in this mess are the same people my tax dollars are going to help.
$12 million in bonuses…I wonder how many homeowners that could have helped out…
The reason Fannie and Freddie messed up in the first place is because they were run based on political considerations and not sound economics. Free enterprise with the allure of profit and under the discipline of the possibility of failure is what will get them back.
Can B.Frank and his cronies be impeached/jailed/demoted from public life/publicly ostracized and ridiculed at the bare minimum ?