Freddie Mac And Fannie Mae Approaching Retirement

Fannie Mae Common Securitization Platform Fannie Mae Mortgage Insurance

Fannie Mae

Photo by NCinDC

At 85 years old, Fannie Mae could be approaching retirement. Both parties are discussing ways to get rid of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with the goal of getting the federal government out of the mortgage business, but Americans may not realize the practical impact of such a decision, says Lisa Prevost the New York Times.

Freddie Mac And Fannie Mae Approaching Retirement

Fannie Mae and Freddie Mac’s bailout

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) received a $188 billion bailout during the global financial crisis, which they’re on track to ultimately repay, and have received a lot of criticism for putting taxpayers on the hook for private lenders. Most of America’s home loans are either owned or guaranteed by Freddie Mac and Fannie Mae, and the prevailing opinion is that this is a bad thing.

But it’s this government intervention that makes buying a home realistic for most Americans. Without guarantees, interest rates would rise by a percentage point or more (a significant chunk of cash on a 30 year mortgage), and people with mixed credit and middle class incomes may not be able to get a home loan at all.

“What’s at stake here is access to mortgages at an affordable price,” Julia Gordon, the director of housing finance and policy at the Center for American Progress told Prevost. “If you scale back the government guarantee too much, then you end up with a really segmented market where people who have pristine credit scores and lots of money can get good, safe, well-priced mortgages, but everybody else can’t.”

Obama to create a new federal agency

The Senate bill, which has been tacitly supported by President Obama, would create a new federal agency with reduced powers. The House bill would simply eliminate both agencies and leave mortgages to the market. The goal of both bills is to get mortgage risk of the government’s books, but one only has to look at other industries affected by the crisis to know that systemic risk always gets placed on the government’s doorstep.

If Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) hadn’t existed during the financial crisis the bailouts simply would have gone elsewhere. The only way to prevent another government bailout is to prevent systemic risk, which neither bill aims to do, or reduce American home ownership, which no one wants.

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)

About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

Be the first to comment on "Freddie Mac And Fannie Mae Approaching Retirement"

Leave a comment