by Phil Hoover, Real Estate Broker

U.S. Treasury Winding Down Fannie & Freddie

Both Fannie Mae and Freddie Mac, known as GSEs (government-sponsored entities), are held in conservatorship by the U.S. Treasury.

This essentially amounts to a federal takeover of the two mortgage giants that dominate the secondary mortgage market.

(“secondary mortgage market” means the GSEs buy loans originated by lenders)

Both entities have been on the receiving ends of massive financial support from we taxpayers (think “bailouts”) in the past few years.

Now, the FHFA (Federal Housing Finance Agency) is requiring the GSEs to reduce (sell off) their loan portfolios in an attempt to reduce taxpayer exposure for additional support.

The FHFA is also stepping in and “sweeping” the entities’ entire profits each quarter vs. the prior practice of requiring them to pay a 10% dividend.

Now, the unanswered question is “what happens to our secondary mortgage market?”

Congress has yet to come up with legislation to answer that question (surprise, surprise :( ).

Lenders can’t/won’t lend if they don’t have someone who will buy the mortgages they originate.

Source: DSNews.com article

 

August 21st, 2012 Posted in Inside Real Estate Print This Post Print This Post

  1. 4 Responses to “U.S. Treasury Winding Down Fannie & Freddie”

  2. By love on Aug 22, 2012

    “Lenders can’t/won’t lend if they don’t have someone who will buy the mortgages they originate.”

    Wrong. Lenders would rather make risk free money with taxpayer subsidised rates and taxpayer holding the bag on risk while writing loans to folks who cannot save money but somehow can be responsible to maintain a residence.

    Lenders will be glad to enter a private market but they will ask to be compensated for the REAL risk. That means downpayments and interest rates will have to reflect buyer capacity to borrow…not taxpayer willingness to take losses

  3. By philhoov on Aug 22, 2012

    Lenders rely upon the secondary market to buy their loans after they originate them.
    Not even the largest lenders have enough capital to keep (portfolio) all of their loans.
    If there were no secondary market, lenders would be unable to continue lending.

  4. By love on Aug 23, 2012

    There is a secondary private market for MBS. I can tell you because I have traded lots of MBS not owned by Fannie/Fred. Pensions, Funds etc all buy this stuff. NO NEED FOR gov to interfer in the free market. Why should renters subsidize homeowners???? Fannie and Freddie are the new SUB-prime…its just your tax dollars.

  5. By philhoov on Aug 23, 2012

    Perhaps I wasn’t clear.
    My point was that Fannie/Freddie are the largest buyers of mortgage-backed securities.
    If they no longer exist, it is questionable if the private secondary market could buy mortgages originated by lenders.

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