Fannie & Freddie – Once Villified As Too Big – Are Now Going To Get Bigger

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February 18, 2009 11:36 AM EST by Brian Sullivan

Fannie & Freddie - Once Villified As Too Big - Are Now Going To Get Bigger

Part of the President's newly announced housing plan is to grow the size and power of Fannie Mae and Freddie Mac by allowing them to buy more mortgage securities and, theoretically, loosen credit in the housing market.    The Administration wants to help up to 5 million homeowners refinance loans that are backed by these two government sponsored enterprises (GSEs).    The plan would also permit Fannie and Freddie's mortgage portoflio to each grow to a staggering $900 billion dollars.

How short memories are in Washington.

I vividly remember covering the SEC investigation and 2003/2004 hearings in Washington over accounting problems at Fannie and Freddie. The firms were viewed as too big, too powerful and too mismanaged.   The result of an investigation into Fannie Mae resulted in the firm restating of results and wiping out billions in previously announced profits, as well as the firing of then-CEO Franklin Raines.    Freddie Mac's CEO was also canned, and the firms were raked over the coals in Congress.    There was also cries for the creation of a new regulator to oversee the two.   Now, just five years later, these firms are viewed as mortgage market saviors and being asked - told - to get bigger.

Additionally, the plan is that it will force Fannie and Freddie to ignore loan-to-value ratios and automatically approve certain refi applications.   Consider that.   Currently you cannot refinance if the value of your loan is more than 80% of the equity in your home.   This ill fated move to help underwater homeowners will end with Fannie and Freddie owning millions more mortgages that are worth just fractions of a homes worth, if not more than the value of the home.  Taxpayer sponsored negative equity, and a program that is likely to lead only more writedowns at these firms as they are forced to realize the true value of these assets.

Does Washington forget the past, or simply ignore it?   Fannie and Freddie five years ago were part of the problem, now they are being asked to be part of the solution.   Perhaps we can give the President a break on this, given that he may not remember.   After all, he was an Illinois State Senator while the Fannie and Freddie hearings were happening and was far removed from the Beltway fight.   There is less of an excuse for the others.

7 Comments

Jeri

I am sick to death of taking care of unproductive people who expect me to pay their way through life. These people knew they couldn't afford these homes and Freddie and Fannie should have never loaned to these people but I can only assume that they were pocketing so much from this (including Barney and his partner) It is horrible that they are handing this over to the people who created the mess in the lst place. I know of instances where loans were given to illegal aliens in the name of their 3 year of child (dropped on American soil) and now I have to pay for them. Every hardworking American taxpayers should refuse to pay anymore taxes until the idiots in Washington , especially that blabbering Barney Frank who has made so much money out of this straighten up their mess that they have created. I work very hard to pay my mortgage, maybe I shouldn't anymore. Fair is Fair.

February 19, 2009 at 3:17 pm

Jennifer Groesch

You have got to be kidding me! These two organizations and the legislators that have protected their incompetence have caused this mess. Who in their right mind would think that the folks that created this catastrophe are the right ones to fix it??? Mark my words . . . within a few years the talking heads on the Hill will be looking into the cameras protesting that no one could have seen it coming . . .when this problem is 5 times the size it is now. The corruption and incompetence need to stop!!

February 18, 2009 at 10:12 pm

James Raider

Are you responsible for your neighbor’s bad decisions? http://pacificgatepost.blogspot.com/2009/02/obama... Obama and Congress appear to think so.

February 18, 2009 at 7:31 pm

laura locascio

We are a people ...Who help people.......A Lot of people messed up & bought homes they could not afford...So on &... so forth....If the government (who is us) has to help...So be it...But I would like to add...This should be a money making institution & pay back the tax payers...& our national debt...If the Accountants & financial people are smart... We could make a profit on this...

February 18, 2009 at 7:12 pm

aquarius121

I'm tired of the media talking about keeping people in their homes. That's nonsense. Most of those people shouldn't have been given mortgages in the first place, e.g. liar loans. Better to forclose and let the market take care of it. The more government tinkers the more the rest of us get screwed. When has the term 'investor' as applied to real estate become negative. What we need are investors with money who can buy up some of these foreclosed homes. I'm also tired of the media repeating the mantra that banks are not lending. Nonsense. They just want you to prove that you can pay it back!

February 18, 2009 at 6:34 pm

charla edgar

It is once again the government rewarding failure and failure to act in the best interest of the country. I personally have had enough! People need to be held accountable for there actions. You can not fix stupid! I should not have to PAY for STUPID!! Fannie & Freddie need to be sold off and closed! The government has no right or business deciding who wins and who looses. That is against the Constitution.

February 18, 2009 at 5:37 pm

Matt Balch

Don't forget that it was Barney Frank and Chris Dodd who were opposed to and (along with all of the Democrats) blocked an attempt to clean up the mess in 2003-2004. Now they are running the committes that overseee Fannie and Freddie.

February 18, 2009 at 5:07 pm

about this blog

Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.
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Fannie & Freddie - Once Villified As Too Big - Are Now Going To Get Bigger