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hole in the argument seems to be following: even the FHFA admits that almost all non-governmental organizations have withdrawn their capital from the housing market.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!”