Fannie Freddie Rake in Record Profits: But will Money Train Last Forever?

Question

Fannie Mae and Freddie Mac own or guarantee approximately 60% of all of the mortgages in the U.S.A. According to a recent article in MPAMag.com, Fannie and Freddie are pulling in record profits. But the head of the Federal Housing Finance Agency, Mel Watt, warns that the “money train won’t last forever.”

“The record level of profits that Fannie and Freddie have had over the last couple of years certainly are not sustainable, because they result in large part from large settlements of litigation,” Watt said.

Congress is working on passing new law that that would replace Fannie and Freddie with private investor capital. Many mortgage industry experts oppose this measure, as they believe will be detrimental to housing finance as a whole.

(Source: MPAMag.com: http://www.mpamag.com/mortgage/watt-private-sector-unready-to-replace-fannie-and-freddie-18271.aspx )

Posted by Corey Curwick Dutton

Mike H. · Answer

I don't know why the govt wants to get rid of freddie/fannie. The model works fine the way it was setup. The obviously simple solution is to just regulate the companies to prevent them from doing all the stupid loans they got into when they were left unregulated.

Had fannie/freddie not done the 1) no doc loans or 2) the no down payment loans or 3) the subprime loans, they would have never taken the beating that they did. But ultimately they made all the taxpayer money back and then some.  Why does the govt have a problem?

The system worked fine. Now just go ahead and add some basic regulation to these goofs (i.e. no more no money down, no more sub prime and no more no doc loans) and they'll be fine. And we can continue getting 30 yr fixed mortgages and the housing market will come back.

They're saying that if they go private, financing is going to be more expensive for homeowners. So why in the world would we do that? They're also suggesting that the govt is going to insure those private lenders for a certain percentage of the loan.  Again, the taxpayer is getting hosed on both sides.

Big business is getting the profits with none of the big risks. Why give big business a penny? If the taxpayer is on the hook for the loans any way (in some form or another), just cut out these private lenders so homeowner can get the better rate.