Mortgage giants Fannie Mae and Freddie Mac on death row?

House honcho Barney Frank feels that it's time to let these two GSEs, the home loan superstars that have for a long time dominated the secondary mortgage market, expire. Instead of trying to fix them, they should be strapped down and given some liquid that puts them to sleep.  

Fannie Mae and Freddie Mac, in all honesty, have had their problems lately. Years ago they were rocked by management shenanigans, including cooking the books to allow top leaders pocket fatter bonuses. Sounds familiar? More recently they have suffered heavy losses as the real estate market flew right over the cliff and were eventually taken over by the government. But just about every mortgage lender or investor out there is taking it to the chin now, so it's quite common these days.

Regardless, debate has been underway for a while about the future of these important mortgage organizations and now it may be coming to a head. One way or another. There is quite a bit of support in Washington and elsewhere for their outright dismissal. Frank wants nothing less than wipe them off the face of the mortgage scene and bring in a brand new replacement structure. Okay. Perhaps everyone ought to take a deep breath and think this thing through before rushing into anything totally new.

See, the management problems occurred because the governmental oversight by HUD and the Congress was lax. The housing market was doing just peachy early in the decade, actually too peachy, so everybody basically left them alone to knit their little accounting schemes. When the cat is away the mice dance on the table. Tighter supervision would've kept Fannie Mae and Freddie Mac on the straight road. This is hardly a good reason to dismantle these firms. Perhaps the oversight segment should be looked at, and possibly replaced.

Same thing goes for the recent losses. Some realistic red flags were raised by industry experts as the real estate market accelerated toward the pinnacle, but these GSE's, like most private mortgage lenders, ignored sound lending practices and are now paying the price. Like the entire nation is. Again, the oversight was inadequate, missing the boat.

Fannie Mae and Freddie Mac do need some changes to meet requirements of today's difficult housing and mortgage markets. They don't have to be boarded up.  Combining might be the ticket, bring them under one roof. Even if they were tossed by the wayside, the spanking new entity would still need a strong oversight function to do any better. That's the key.

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Provided by: 

Esko Kiuru
Mortgage Consultant, Father, Golfer, Skier, Beer Aficionado

www.eskokiuru.com - complete mortgage platform
www.BluefoxToday.com - syndicated mortgage and real estate blog

esko@eskokiuru.com
My cell: 702-499-1006

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