Revamping Fannie and Freddie: Not an Easy Task

Revamping Fannie and Freddie: Not an Easy Task

It may be ironic that the 2013 American Securitization Forum (ASF), a summit for the mortgage-backed securities industry, was held at the Aria Resort and Casino in Las Vegas as during the last week of January. Among the many issues discussed at the ASF meeting, the future of government-sponsored mortgage investment entities Fannie Mae and Freddie Mac took center stage.

Fannie and Freddie have been instrumental to keeping the secondary mortgage markets afloat since their collapse in 2008. Both companies are currently under governmental receivership, and their future is uncertain. There is ample interest in overhauling Fannie and Freddie, but a consensus has been very difficult to reach; this much was explained by U.S. Treasury official Michael Stegman at the ASF.

The Government Goals

According to Mr. Stegman, the government is interested in continuing to provide mortgage guarantees. Some of the objectives the White House is considering include:

  • Taxpayers should no longer carry the burden of keeping the secondary mortgage market afloat.
  • Mortgage credit should be extended across all income levels and socioeconomic classes.
  • The contributions of renters to the housing economy should be considered when analyzing the mortgage markets.
  • The government should step in to ensure that mortgage credit is always available.

Mr. Stegman, who is the coordinator of the effort to revamp Fannie and Freddie, explained to the ASF that he has not received any input from the mortgage industry that focuses on all the objectives he thinks are needed for a comprehensive overhaul. The problem, Mr. Stegman informed, is that most industry players are only concerned about the government continuing to provide mortgage guarantees.

Catering to Private Interests

As coordinator of the effort in rebuilding Fannie and Freddie, Mr. Stegman could push the White House to go forward with creating a system that addresses all objectives the entities need to survive and serve the interest of taxpayers, but doing so will not only be very expensive but would also create political discomfort.

The U.S. mortgage markets are worth $10 trillion. Without government guarantees, mortgage origination would fade away for the most part. Fannie and Freddie cannot cater to private interests without taking into account the interests of borrowers who represent the public. In fact, Mr. Stegman also mentioned to the ASF that the government may go forward with an initiative to help underwater borrowers whose mortgages are not guaranteed by Fannie and Freddie, a proposal that private lenders have been mostly silent on.