The End of Fannie Mae and Freddie Mac

By James Power

The U.S. Treasury introduced its plans today to do away with troubled mortgage giants Fannie Mae and Freddie Mac in the coming years.

The two firms have been the primary driving force behind the expansion of American home ownership since Fannie was founded in 1938.

Today they provide a secondary market for 9 of 10 American mortgage loans, buying up the paper from issuing banks, packaging them and selling them to investors as guaranteed mortgage securities.

During the 2008 financial crisis they collapsed into government conservatorship as a massive number of loans in its vast $5.6 trillion portfolio started to fail.

“This is a plan for fundamental reform of the housing market,” said Treasury Secretary Tim Geithner on an informational call for reporters.

It’s not unfair to say the American Dream – as epitomized by owning a home – changed a bit today. The government is getting out the ownership business, with members of the Treasury team suggesting that our housing policies need to be “rebalanced” to value renting as well as owning a home.

President Bush’s “ownership society,” and the ensuing run-up in home buying, is effectively over.

The process will take years to implement as the housing market is still massively fragile, there’s not a lot of private sector interest in mortgage paper and a glut of foreclosure sales keeps pushing the nation’s home values down.

“And I want to emphasize that we’re going to proceed on this path of reform very carefully so that we make sure we’re supporting the process of economic expansion and repair of the housing markets which are suffering the damage caused by the crisis,” said Geithner.

The Treasury’s plan is committed to winding Fannie and Freddie down over a term of 5-7 years, putting in place new regulations which will allow the private sector to replace the government involvement in the housing market.

The authors offered up three distinct “options” for how the future housing might work – a government “re-insurance” program to backstop private investors, a limited “re-insurance” program that scales up during recessions, or no government backstop at all.

Treasury and White House officials will begin the process of working with Congress to build consensus around one of the three options and bringing legislation to the floor for reforms, “…in the next couple of years.”

Another great reason to get quaified as early in the process as possible is to insure the fastest closing possible. If there are multiple offers going in on a home, you may be at a disadvantage if you are not able to secure financing quickly. Don’t wait until the last minute!

We have home purchase specialists standing by that can give you FREE home purchase finance advice. Feel free to request a FREE Rate Quote or to Contact Us directly.

cforms contact form by delicious:days