How Does the U.S. Quit Housing When Fannie, Freddie Rake in Billions?

by 08 Apr 2013

(BusinessWeek)  - Wonders, they never cease. Fannie Mae, one of the two big government-seized mortgage guarantors, just posted a record profit of $17.2 billion for 2012. Its cousin, Freddie Mac, earned $11 billion last year. That’s just over four years since they essentially failed. (Combined, Aunt Fannie and Uncle Freddie, as wags like to call them, racked up more than $22 billion in losses in 2011, before the big snapback in the housing sector.)

The windfall puts a new twist on Uncle Sam’s tricky business of somehow weaning the all-important, $5-trillion mortgage finance-guarantee business from government conservatorship.

Fannie and Freddie package lenders’ mortgages into popular securities whose payments they backstop. They did this so much, and for so many bad loans, that they were seized by regulators in the dark depths of 2008. Since then, they have drawn $188 billion from the Treasury Department. Lawmakers, for all their perturbed bluster about the government overseeing this critical layer of the housing industry, have yet to establish a firm timetable for private-sectorizing the two firms.

Now, however, the status quo is no longer as unsavory as throwing hundreds of billions of dollars of taxpayer money at public enterprises that consistently post billions in losses. Fannie and Freddie have so far sent back in excess of $50 billion to the Treasury; they are allowed to retain only $3 billion in net worth, with profits above that accruing to taxpayers. Until recently, it was widely thought that the companies had no imminent path to profitability. Then the housing market took a turn for the better—very much so, it seems.

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