Brian Moynihan, the Chief Executive Officer at Bank of America who succeeded Ken Lewis and his questionable acquisitions of Merrill Lynch and Countrywide, recently expressed his opinion on the troubled government-sponsored mortgage companies Fannie Mae and Freddie Mac. Mr. Moynihan made supportive statements on behalf of Fannie and Freddie during a Mid-December panel meeting at the Brookings Institution in Washington.
Housing and finance regulators are gearing up to create a new housing finance system that would place emphasis on funding the mortgage market with private capital, a role that Fannie and Freddie have filled for many years. In the wake of the housing market crash and the collapse of mortgage-backed securities, Fannie and Freddie failed as financial entities, but they were rescued with taxpayers' funds. Since early 2009, Fannie and Freddie have practically been the only mortgage investors in the United States.
The current housing and mortgage market is highly dependent on Fannie and Freddie, two entities that are still under government conservatorship. Regulators and finance officials would like to put an end to this dependence and transition to a new system, one that places greater responsibility on private investors. Mr. Moynihan, however, believes that Fannie and Freddie should stick around until the new system is proven to be wholly functional and efficient.
Looking for a Smooth Transition
A new housing finance system with little support from Fannie and Freddie may not happen in the second term of President Barack Obama, but think-tanks and politicians are starting to weigh their options. Mr. Moynihan believes that pending regulation is keeping private investors away from the mortgage market. He does not think that completely changing the current function of Fannie and Freddie would be a good idea.
Mr. Moynihan agrees that the national housing finance system of the United States should be primarily funded by private capital. Under the current system, which was born out of urgency after the subprime mortgage meltdown, taxpayers are assuming all the risk of the housing market. This also means that there is little access to credit in the U.S. at the present time.
Fannie and Freddie should be gradually withdrawn from the new housing finance system, Mr. Moynihan argues, or else borrowers will face even greater difficulties in getting mortgages. Without a smooth transition, mortgage applicants may see their hopes to purchase hew homes diminished even more than they are now.