Fannie, Freddie making billions—why shut them down?
On a Monday morning five years ago this week, thousands of employees at mortgage giants Fannie Mae and Freddie Mac went to work to find a new boss: The federal government.
Crushed under the weight of thousands of defaulted mortgages and bleeding cash, Fannie Mae and Freddie Mac were put into government conservatorship.
Now, a short five years later, the two are making billions of dollars in profit—profit that goes straight to the U.S. Treasury. Against this backdrop, lawmakers are setting the stage for an epic debate on the future of U.S. housing finance, a future that will likely mean the end of Fannie Mae and Freddie Mac.
“Everyone gets so caught up in their profitability, but everyone forgets that profitability is tied to their direct government support,” said Jaret Seiberg of Guggenheim Partners.
That’s why the debate over government involvement in the mortgage market is so fierce. Lawmakers are eager to protect taxpayers, but they also need to keep home finance afloat. How do you “wind down” two entities that now back two thirds of the U.S. mortgage market? And how do members of Congress reconcile that goal with the fact that the two are now huge cash cows? In order to look forward, it is essential to understand how we got here. Read More