Mortgages: Do Away With Fannie Mae & Freddie Mac?
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The news is filled with stories regarding efforts to dump Fannie Mae and Freddie Mac and replace them with, er, well, no one knows what.
Good luck, folks.
Fannie Mae and Freddie Mac are now being blamed for following the instructions they received from the federal government. For example, in 2000 the minority loan purchase goal for the two companies was set by HUD at 42 percent. By 2008 the quota under the Bush Administration had reached 56 percent.
The equation being made in some quarters is that minority loans are automatically bad loans. This is nonsense. Just look at the foreclosure figures below.
Truth is Fannie Mae and Freddie Mac have done enormously well by the measures that count.
First, they maintained the secondary market that buys loans from local lenders. The marketplace has not been closed for a single day since the foreclosure crisis began.
Second, Fannie Mae and Freddie Mac have extremely low foreclosure rates. According to the latest report from the Federal Housing Finance Agency, the two companies have had 71,559 foreclosures in 2009. This sounds like a lot, but remember that these two companies hold 30.2 million mortgages. If the rest of the mortgage sector did this well there would be no mortgage meltdown and no foreclosure glut.
Third, the companies rarely bought subprime loans until forced to do so by the federal government in April 2007.
The real issues with Fannie Mae and Freddie Mac concern politics and money. Let’s hope any changes to revise the companies do not make them worse, because if they cannot effectively buy local loans you can expect mortgage rates to soar.
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