From the Voice of San Diego Real Estate
We all know that Fannie and Freddie are now in conservatorship of the US Government and that there is new leadership at the helm in both of the GSE's (Government Sponsored Enterprises because they were chartered by Congress to create a more stable mortgage market) .
Each of these companies have agreed to issue 1 billion of senior preferred stock to the US Government and they also must issue warrants, in effect allowing the government to buy up to 80% of its common shares. The real issue is that in 2010 when supposedly they must to rid themselves of a majority of their debt at 10% a year, the government's plan is to bring each of their debt ( or the aggregate amount of the loans it can issue) to only $250,000,000,000 ( 250 Billion) each. That may seem like a lot but it represents only about 1/3 of each of their current portfolios.
Because Fannie Mae and Freddie Mac bridge that needed gap of supplying affordable loans irrespective what the stock market investors are doing, it has been a constant in our home lending industry that we in the industry and consumers alike rely on for affordable loans.
If they are made to disappear, which could be the plan behind the plan, we would then have limited the source of loan providers and ultimately be more greatly tied to the very people that actually played a major role in the housing crisis in the first place.
Joel Singer, our Executive Secretary of our California State Association released this video today and it will help you better understand the important and significant role that Fannie and Freddie play in the market and what would happen if these entities disappear. Meaning that if the government actually has in mind to shrink their status to be non-existent , the affordable smaller loan market would be severely damaged. We must watch this process carefully and encourage Congress to be prudent but also to be very careful we don't end up throwing the baby out with the bath water. Patience, oversight and great care must be exercised to ensure that these entities remain a viable source for affordable loans.
In the short term I agree with the Treasury's actions to shore up the confidence of their capital investors. In the longer term, I fell strongly that we need this competitive force in the housing industry.
I read recently that Forbes takes the view that Fannie and Freddie would be far better if broken up into a dozen competitive companies. At this time I would be in disagreement of that outlook because the GSE's being hybrids have always had the presumption of our Federal Government as their overseer and it has been assumed that the good faith credit of the Federal Government has been one of the key reasons they have had the ease in raising capital, especially from foreign governments. And we are not talking small change here.
While it is true that Fannie and Freddie may not have exercised the care that was needed in the management sector of their enterprise, I don't feel that a permanent takeover would be justified or in our best interests in the real estate and lending industries. The Fed, Treasury and Congress do need to set stronger management guidelines and over site which they already should have done but seemed to me to have taken their eye off the ball.
In football analogy, The GSE's were moving the ball closer to the end zone but in fact were heading to the wrong goal posts. It is my hopes that they they can be pointed in the right direction and that this turn around is not the end of the game for Fannie and Freddie as we know them.
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