While most analysts are recommending minimizing Fannie Mae and Freddie Mac or even winding them down, the Federal Reserve says that the best way to rescue the United States housing market is to use the government-controlled GSEs in a larger capacity in the coming year to provide “cheaper mortgages to a broader pool of homeowners”[1]. The recommendation comes as a surprise to many, given that even the current administration’s official policy on the two debt-riddled agencies is that their role in housing finance should be reduced. However, in a paper sent to lawmakers yesterday, Fed analysts propose to expand GSE roles in government financing programs in order to bring down the inventory of unsold homes in the country and put more people back in a homeownership position. Part of this plan would include allowing Fannie and Freddie to refinance loans that they have not guaranteed.
The proposal for expansion comes fast on the heels of the paxroll tax cut extension, which was approved for two months right before Christmas and will be financed for decades using the fees from GSE-guaranteed loans. Some might argue that this proposal is nothing more than a grab for more loans on which to assess fees, but in the letter to lawmakers the analysts insist that the move would simply get more people back in vacant properties, thereby removing a stumbling block to the housing recovery and a greater economic recovery. The move would potentially allow as many as 2.5 million more existing homeowners to refinance their loans through the Home Affordable Refinance Program (HARP), but it would also create an even greater debt situation for the GSEs and, as a result, for the American taxpayers funding Fannie and Freddie.
On another note, the paper also addressed the possibility of renting out foreclosed properties directly rather than reselling them to investors and letting those individuals handle rentals. The Fed believes that if Fannie Mae would rent out just two-fifths of its present REO properties, GSE losses could be reduced substantially[2]. Critics of rental proposals argue that the government should not be involved in landlord positions and that attempting to rent out GSE REO properties directly would likely cost more in the long run in terms of new organizational costs than the GSEs would lose if they simply sold the properties in bundles to investors.
Do you think that Fannie and Freddie should have a larger role in the U.S. housing market? Is this a power grab on the part of the Fed or the GSEs?
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[1] http://www.reuters.com/article/2012/01/05/us-usa-fed-housing-idUSTRE8031SE20120105
[2] http://www.sltrib.com/sltrib/money/53229513-79/percent-fell-inc-rose.html.csp
p://economix.blogs.nytimes.com/2012/01/04/the-feds-advice-on-the-housing-crisis/
Providing “cheaper mortgages to a broader pool of homeowners” is exactly what got us into this mess in the first place. Fannie and Freddy need to be wound down and dismantled entirely, and the sale of mortgage-backed securities should be banned unless their contents have been audited by an independent rating agency willing to bear responsibility for their failure.
Whenever government gets into the lending business, whether it’s mortgages or student loans, prices go up and consumers lose.
I don’t believe that either of them should exist. Banks should hold the mortgage they provide and not be able to sell them to Fannie or Freddie. Imagine my surprise when I refinanced my mortgage, credit score in low 800′s, proof of adequate income and 15 year loan… No wonder this country has so many problems with foreclosures. If banks weren’t forced to lower reasonable credit standards to provide anyone with a mortgage regardless of whether they could afford it or not because they were backed with Freddie and Fannie no care.
Isn’t that the same recipe that helped getting us where we are today? In other words, The same ideas that created the problem are now used to fix it? Brilliant!!!
Gee Gerald, please discover what the FED is doing and why. Also, to better understand you may want to pickup some of its history on its founding, and what the founding fathers of our country say about it. It’s been nothing but disastrous for us. I don’t understand your apparent affinity for the NWO either as it is the reason the FED exists. Obama and Congress are mere pawns of the NWO crowd, just as are the GSE’s. Yes, FHA has helped some folks get financing. But, I believe that our job is to help clients get the “best” financing. And because of its use as a tool to create U.S. disasters, the FHA is no longer “the best.” I don’t think I’m doing my job very well if my clients go to the FHA. I try to help them stay local on their financing.
A larger role for Fannie & Freddie? They are both bankrupt! It would be a larger role in the destruction of the housing market and our economy. Stop the shell games and let the market correct itself. No pain, no gain!
Financing a Real Estate Purchase in the United States is a serious handicap right now to Home Owners and Investors (including Canadians). Anything that allows New Home Owners and Investors to finance a purchase easier will relieve the bottleneck that jams up the real estate markets right now.
There is absolutely nothing wrong with allowing Freddie and Fannie to refinance loans they have not guaranteed. They will guarantee the new loan… This new approach would approve financing for more Buyers and restart the ailing Housing Market. I see this as a lower risk to the country than restricting the Market and waiting for prices to drop lower hence making the problem worse.
Political drivel about reducing government is not what this nation needs at a time of crisis. An expanded role for Freddie and Fannie (narrow politics aside)could help to correct the problem.
In my opinion, newer loans for borrowers with high FICOs (pretty much includes everyone these days because of tighter lending standards) are being sold to FNM and FMC at high rates to mitigate risks for loans likely to or already in default. If we had one loss pool within the GSEs, PMI premiums would help offset past and anticipated losses and put them back on their feet. Could this not in part explain the Fed’s recommendation?
Why do those commenting blame borrowers (or the GSEs for that matter) for the housing crisis? It was Wall Street who perpetrated fraud on the value of the mortgage backed securities (and bet against them through credit default swaps) and servicers who perpetrated fraud in foreclosure actions. There are many culprits for the crisis.
Regardless, new home loans are (and should forever be) subject to tighter lending standards to include 20% down, income/debt ratios, and full doc.
Well it seems like everyone here is in agreement that this would only cause more damage, its ashame simple people like us can see what’s wrong but the highly educated overpaid liberals don’t
The Fed isn’t a bunch of fools. They know EXACTLY what they are doing.
I strongly recommend you read “The Creature from Jekyll Island” by G. Edward Griffin. Jekyll Island, Georgia is the site of a one-time Morgan family resort (that’s “Morgan,” as in “John Pierpont Morgan”) where the United States Federal Reserve Bank was born.
It is not a government agency (it’s privately owned), has no reserves, and is not a bank. It was created to facilitate the growth of the largest banks at the expense of smaller, community and regional banks, and to execute bailouts like that of 2008.
The Fed isn’t a bunch of fools. They know EXACTLY what they are doing.
Fred and Fan need to go on a diet. They should join forces and be streamlined. There are too many wasted resources by having two agencies. Put one program together and work to eliminate the agencies, the GSE’s and get the REO inventory sold. Even the banks are holding onto inventory, rather than releasing them to the Brokers to market. We have several homes in are area that have been bank or Fannie Mae owned for nearly 3 years and are not listed (never been on the market). In retail we are taught to cut prices to move inventory as fast as possible, because if it sits in inventory too long we are loosing money due to opportunity lost and capital costs. ANOTHER THING, Make all Loan Originators, Loan Officers, Mortgage Brokers, Loan Underwriters legally “Fidiciaries”, whereby they have a legal obligation to only allow good quality loans. Make them financially and criminally responsible, when loans fail due to a material fact that they did or should have known about at the time of underwriting.
Ernie’s ANOTHER THING (above)is right on. The loan officers I refer from my agency position act like they have fiduciary responsibility or I no longer use them. I didn’t understand the ghost inventory Ernie spoke of until I found out the taxpayers are paying the banks for these losers being held. The longer the banks hold them the more money the banks make. The government rewards those things it wants continued and expanded. That’s right! A strong nation state is the enemy or nexus of the NWO. So,… bust the strong nation state. Great plan, eh? Brace yourself! Its coming soon. Just follow the dollars and values outa here. Egods, I hope I’m wrong! But where?…