Many believe that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) may be nearing the need for another Treasury bailout. It is not that these Government Sponsored Enterprises are not profitable. In fact they have repaid the last bailout and then some, to the tune of nearly $290 billion. That is about $100 billion more than the bailout given to keep them from going under that placed them into conservatorship.
A conservatorship by definition is "a legal right given to a person to be responsible for the assets and finances of a person deemed fully or partially incapable of providing these necessities for himself or herself." Fannie Mae reported earnings of $1.3 billion in the fourth quarter of 2014. Freddie Mac earned about $200 million. That hardly looks like they are not capable of providing necessities.
As a result of the bailouts, banks are increasingly required to keep larger cash reserves, yet Fannie and Freddie have nearly none. Why? Because the administration and the treasury are stealing them blind by "sweeping" their profits away, eliminating reserves and putting them in jeopardy of needing another loan from the Treasury (taxpayers) to stay afloat. Back in February, Fannie CEO Tim Mayopoulos said because the company does not have a capital reserve, there is a risk that it may be forced to rely on taxpayers for another loan. According to reports, Mayopoulos said the "possibility of needing to take a draw from Treasury increases over time."
These GSEs, Fannie and Freddie, buy the lion's share of residential mortgages. Because of this, folks with less than stellar credit are able to buy homes for smaller down payments because the loans will be sold to F&F. These loans have to pass a test. F&F have determined that these loans are safe - less likely to default - and since the bailout have been proven to be right. At least that is what their profit would tell us. The fact that this profit is being taken by the government, thereby jeopardizing the ability for F&F to survive another housing downturn where defaults rise, puts the burden of their failure directly on tax-paying Americans who will provide the capital to bail them out once again.
The elimination of F&F would have a serious impact on the housing market by removing the loans only available because of their existence. Removing the loans eliminates buyers who cannot afford the customary twenty percent down payment lenders require without the guarantee that these entities will buy those lesser down loans.
It is a healthy real estate market and much of that good health must be attributed to the GSEs who buy an estimated ninety percent of home loans. For the government to jeopardize their operations by siphoning off their profits seems a bit like sabotage to housing, an industry credited with bringing our nation out of every recession seen.
It appears that the government is headed toward the elimination of Fannie and Freddie. They have stated that they would like to see private companies making more of these loans. After the crisis of 2008 one would have to assume that private mortgage companies will be less than likely to make low down payment loans without a secondary market to sell them to. That could eliminate an awful lot of home buyers.
Trust an expert....call a Realtor. Call your REALTOR or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a REALTOR member who will represent your best interests.
Kim Cooper is a real estate Broker and the spokesman for the Coeur d'Alene Association of REALTORS. Kim and the Association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of REALTORS, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling 208-667-0664