Real Estate & Mortgage Insights
What's up next for Fannie and Freddie
With a Republican majority poised to take control of the U.S House next week, there has been much speculation as to the fate of mortgage finance companies Fannie Mae and Freddie Mac.
The two government-sponsored entities were turned into government-run entities in 2008 after the housing crisis nearly killed them. These two companies guaranteed about half of all loans in the U.S at the time the housing bubble burst, and today, as of the first quarter of 2010, they (together with the Federal Housing Administration and the Department of Veteran Affairs) have backed roughly 90 percent of the country's new loans.
While clearly an important part of keeping the lending lines open at this time, tax payers have had to foot the bill for the Fannie and Freddie bailout, paying about $134 billion to date, and there is talk of at least another $20 billion going their way to keep things rolling. By comparison, as a recent Wall Street Journal piece by Alan Zibel pointed out, the projected total cost of bailing out the rest of the financial industry (under the Troubled Asset Relief Program) is a mere $25 billion.
Proponents of continuing federal support for Freddie and Fannie say that the housing market could not survive without them at this point.
"We don't believe that the private market � right now � is willing or able to provide the liquidity that's necessary to get us out of this," said Joe Stanton, chief lobbyist for the National Association of Home Builders, and Vince Malta, vice president of the National Association of Realtors, contends that �to erode that support right now would be a disaster.�
Democrats generally have supported an enlarged role for Fannie and Freddie in order to ensure that minorities, poor, and rural citizens have access to homeownership.
Some, especially Republicans, have made the case though, that by so heavily relying upon the two entities to prop up the housing market, it is preventing private lenders from jumping back in to the scene, requiring tax payers to pay the cost.
Rep. Randy Neugebauer (R., Texas), a former banker and housing developer who serves on the House Financial Services Committee, while not supporting an immediate pullout from Freddie and Fannie, does believe that "at some point, you're going to have to put some pressure on the private market to start picking up that slack.�
Earlier this year many Republicans were hot to rid the federal government of these money-sucking giants, but as their turn for power has drawn nearer, the tone has seemed to moderate.
Back in March, Rep. Jeb Hensarling (R., Texas) declared that "of all the dumb regulation that caused our economic crisis, none was dumber than that which created the (Fannie and Freddie) monopolies.� And many in his party were calling for the privatization of both companies or a quick switch from a conservatorship to a receivership.
Perhaps this statement from Rep. Scott Garrett (R, N.J.) who will be the chairman of the House Financial Services subcommittee, is most telling about the near future of Fannie and Freddie.
�We recognize that some things can be done overnight and other things can't be. You have to recognize what the impact would be on the fragile housing market as it stands right now."
It doesn't look like we'll be seeing major change anytime soon.
