Fannie Mae and Freddie Mac – Walking Dead
Goodbye and good riddance says Rep. Barney Frank to Fannie Mae and Freddie Mac. In his opinion, both mortgage agencies need to be closed for good. Once that’s accomplished, the housing finance system can be rebuilt right.
This is a pretty shocking turn of events in the unfolding housing program restructuring. Rather than fix issues individually, Frank believes the current program needs to be rethought from the ground up. This new trend comes on the heels of announcements claiming unlimited government support for the two mortgage giants. That in turn follows more than $100 billion to cover mounting losses. (Take a look at my 10-20-09 post: U.S. Mortgage Giants Fannie Mae and Freddie Mac Are Broke ).
Though he didn’t provide many details, coming from Frank, a long time proponent of the government-backed agencies, this can only mean a shift in Washington policies. Treasury Sec. Geithner recently stated in an interview that while changes might only happen next year when they do they’ll be the product of a “cold, hard look” at both organizations.
These two entities are the basis of the govt.’s programs to bolster the housing market. Currently they seem to be the government’s only way to bolster sagging housing prices. And according to S&P, any change in support for Fannie and Freddie would have to be carefully weighed against the effect it would have on mortgage premiums.
In a recent report it was shown that the number of borrowers at least 60 days behind on home loans owned or guaranteed by Fannie Mae and Freddie Mac rose to 1.65 million in October from 1.59 million in September, and has more than doubled since a year earlier. Delinquencies of 60 days or more as a share of mortgages serviced by the companies rose to 5.4 percent, from 5.2 per cent.
The US residential mortgage market stands at $11 trillion. Fannie and Freddie stand behind 51% of that. And behind them? Well, the US government, for now. Without that backstop, would enough private investment move in to fill the void?
With the government takeover of both Fannie Mae and Freddie Mac, one would assume that their combined liabilities would be part of Obama’s just released budget . But, for some reason, (most likely their huge junk mortgages) they are absent from the budget. Seems that these two giants and their vast obligations are likely to remain conveniently — and controversially — off the federal books. Fannie Mae and Freddie Mac have obligations conservatively estimated at$1.6 trillion in corporate debt and $4.7 trillion mortgage obligations.
Paul Miller, a former examiner for the Federal Reserve who is now an analyst with FBR Capital Markets in Arlington, Virginia said: “They are using the Treasury’s borrowings to repay” the Treasury. They never made that much money in their heyday. My guess is that Treasury and the government will come to the conclusion that the GSEs will not be able to pay this back and will begin to look at the banking industry to repay the loans.”
Comments are closed.