The mortgage agencies are struggling to make ends meet for years now
If Fannie Mae and Freddie Mac were athletes, they would have been gasping for breath before the race begins. That’s where the raspy cajoling starts. Fannie Mae reported that it lost $74.4 billion in 2009 including $2.5 billion in dividends paid to the government. A week earlier, Freddie Mac also had losses albeit less at $26 billion.
But there’s no worry for the two offices. The $400 million cap of financial support was trashed last year when the Obama administration pledged to provide unlimited backing until 2012. In one way or another, these two offices turned out to be very unprofitable ventures. But as losses come, there’s no way they’d have to be out of the picture. Fannie and Freddie purchase our mortgages which they then have to sell among investors. To make it easier to understand, they’re providing a smoother flow to the mortgage market.
So is there any major overhaul planned for these two losing agencies? Tim Geithner doesn’t believe it’s immediate so it’ll have to wait for another year. The Associated Press quotes the Treasury secretary when he spoke to the Housing Budget Committee, “That’s going to be a difficult set of reforms, but we do not believe it’s necessary to consolidate the full obligations of those entities onto the balance sheet of the federal government at this stage. We can’t do everything right away.”
In a study entitled “Freddie Mac and Fannie Mae: Their Funding Advantage and Benefits to Consumers” by James E. Pearce and James C. Miller III, they concluded that both agencies’ “benefits to consumers are at least $8.4 billion and
may be as high as $23.5 billion” and “In addition, Freddie Mac and Fannie Mae provide benefits, not measured in this paper, beyond those that can be quantified in terms of savings on mortgage interest expense by homeowners. These benefits include maintenance of liquidity in the mortgage market during periods of financial turbulence and expanding homeownership opportunities for low-income and minority families.”
But in 2004, Wayne Passmore of the Federal Reserve concluded in his study that, “Special government benefits enjoyed by Fannie Mae and Freddie Mac haven’t substantially increased homeownership or homebuilding.”
An even more eye-opening study was written by Ronald Utt, PhD. of The Heritage Foundation . He opines, “Despite its claims to the contrary, Fannie Mae’s basic operating procedures do not target any particular type of buyer/borrower. Indeed, evidence from the federal government indicates that Fannie Mae and Freddie Mac are in fact neglecting first-time homebuyers in comparison to the entire private conventional mortgage market. Between 1999 and 2003, 9.0 percent of the conventional conforming loans (the type the GSEs are authorized to buy) made by the private mortgage market were to first-time minority homebuyers. By contrast, only 4.7 percent of Fannie Mae loans and 3.5 percent of Freddie Mac loans over the same period were to first-time minority homebuyers.”
Do these findings be enough basis for the two government sponsored enterprises’ reform? Should Tim Geithner act already? We want to read your thoughts.