Gaining Traction: Fannie Mae And Freddie Mac Flirt With Re-Privatization

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Gaining Traction: Fannie Mae And Freddie Mac Flirt With Re-Privatization

Fannie Mae

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Gaining Traction: Fannie Mae And Freddie Mac Flirt With Re-Privatization via Knowledge@Wharton.

The long quest to re-privatize Fannie Mae and Freddie Mac — the huge federal mortgage-securitization groups that support the U.S. secondary market with mortgage-backed securities — is pushing ahead. “While it seems as though nothing is happening, much is happening,” says Wharton real estate professor Susan Wachter. In this Knowledge@Wharton interview, she explains where developments are heading and the new securities now attracting private investors for the first time since 2008. The interview highlights issues from her new paper — Next Steps in the Housing Finance Reform Saga — written for the Penn Wharton Public Policiy Initiative.

An edited transcript of the conversation follows:

The Push to Re-privatize Fannie Mae and Freddie Mac — Key Milestones.

Fannie Mae And Freddie Mac have been around for a very long time. They’ve operated as private entities — shareholder entities — with an implicit guarantee but specifically without an explicit government guarantee so that they were not, in fact, federally owned organizations or controlled organizations. But as of September 7, 2008, they came under government control. But with the crisis in the overall housing market with the demise of Lehman, it was clear that Fannie and Freddie were illiquid, insolvent and required a government intervention to prevent their meltdown, which of course would have brought down the entire housing market.

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At the time, the housing market was in free fall. But this would have clearly, without support of Fannie and Freddie, taken a Great Recession and made it into Great Depression 2.0. The intervention was necessary. At that point, Fannie, Freddie became regulated entities and controlled by the Federal Housing Finance Agency (FHFA), which is a separate, independent entity. And Fannie Mae And Freddie Mac are now under conservatorship directed by FHFA.

Clearly keeping FHFA in the oversight position forever, with Fannie Mae And Freddie Mac in a conservatorship — what that means is that the taxpayer is … totally on the line for all losses…. Having basically a nationalized housing finance system is not something that’s viable for the long run for the United States.?Twitter 

So, alternatives must be considered and are being considered. But they range from one side of the spectrum to the other side of the spectrum. And getting to consensus has been problematic.

See full article by Knowledge@Wharton.

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3 COMMENTS

  1. Fannie and Freddie was just another scam to make money by taking homes away from Families who were facing hard times of the lost of jobs and the failing economy created by the government . Foreclosures were followed by corruption between the foreclosure attorneys and the lower circuit courts no family had a chance saving their homes . It was all about Big Banks making millions of dollars with the foreclosures .

  2. in my opinion this company should have been allowed to fail. if and i mean if they were to assume my mortgage i would walk away from the house. sounds dumb i know, but i watched so many people have so many problems with this company and there mortgages i don’t want to go through the things that they went through.

  3. I really don’t understand all of the fuss about Fannie and Freddie. Its a govt program that worked exactly the way it was designed to work. It ultimately did not cost the govt one red cent to stabilize the housing market, and they were even able to turn a little profit. Leave Fannie and Freddie alone, and concentrate on some of the essential non-working govt programs like SS, Medicare, and the Post Office.

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