Posts (RSS)Fannie and Freddie to Shed Foreclosed House for Sale Lists
After Fannie Mae and Freddie Mac were saved by the federal government from collapse last year, the Obama administration has been employing these two large government-sponsored enterprises mainly to help contain the problem of distressed foreclosed house for sale inventories.
Now, the administration is starting formal talks to shape the future of the two GSEs. A meeting of the White House National Economic Council this week will tackle the issue.
Lawrence Summers, director of the council, had long planned to revamp Fannie and Freddie. When he was head of the Treasury in 1999, he warned Congress that Fannie Mae and Freddie Mac have grown so big that if they would collapse, the national economy could collapse with them.
One of the overhaul proposals being seriously considered is the plan to transfer all bad debts owned by the two GSEs to newly created government financial entities that would collect the unpaid loans.
Without bad debts, the two companies would be able to start with new and stronger structures that will support the residential mortgage market.
Fannie Mae was founded in 1938 to respond to problems in the housing sector during the Great Depression. In 1968, it was chartered by Congress as a GSE to buy and securitize mortgages to ensure that home loans are always available to home buyers.
Two years after, in 1970, Freddie Mac was founded to expand the secondary market for mortgage loans and to further increase the amount of money available for lending to potential home buyers.
When the housing market collapsed, the two GSEs had to be saved by the federal government to prevent a financial collapse that would down the national economy, as Summers had predicted in 1999. Since their bailout last September, the federal government has infused a total of $85 billion in funding into the two GSEs to keep them alive as they help stabilize the mortgage market.
Treasury Secretary Timothy Geithner said that the federal government has so far been successful in stabilizing the companies, but still has to study what their final function and structure would be.
Fannie Mae and Freddie Mac have run for years as hybrid entities, created by the government to support the housing market but owned by private-sector shareholders. Since their federal bailout last year, the two GSEs have been majority-owned by the federal government.
Currently, as their future roles are being shaped, the two GSEs are helping the government carry out the Making Home Affordable Program.