From this Bloomberg
article:
Quote:
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to allow them to fail, leading Republican and Democratic lawmakers said. ...
``They must not fail,'' McCain, of Arizona, said yesterday during a campaign stop in Belleville, Michigan. Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' he said at an earlier stop in the state, one of the worst affected by the surge in foreclosures. ...
Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair-value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, former St. Louis Federal Reserve President William Poole said.
``Markets should be assured that the federal government will stand by Fannie Mae and Freddie Mac,'' Schumer, of New York, said in a statement yesterday. They ``are too important to go under,'' and Congress ``will act quickly'' if necessary, he said. ...
The federal government can't afford to take over all of Fannie Mae's and Freddie Mac's operations, because such a move would more than double federal government debt outstanding and ``have disastrous consequences for the dollar,'' said Joshua Rosner, an analyst with Graham Fisher & Co. Inc. in New York.
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Both their stock prices fell by about 30% yesterday.
Another article I've read said that as much as 80% of mortgages in the US are backed by either Fannie or Freddie. Another 10% come from the Federal Housing Administration. When you also consider mortgages with VA benefits, then more than 90% of all loans are made more attractive by the government. No wonder so much money ended up in the housing market...
There are two questions then for this topic.
1. Should the government do anything to help Fannie and Freddie? This is going way beyond a bank bailout, the bill would be in the trillions. Assuming they should, is there a cutoff amount when it's no longer reasonable to hold off a real market crash?
2. Should the two GSEs (Government-sponsored enterprises) still be around after this is over? How about the FHA? If their whole purpose is to make it easier to get mortgages, don't they invite another bubble and another crash simply by doing their job? The FHA requirement, for example, is 2 years since bankruptcy and 3 years since foreclosure. Is that really enough time to get back in shape to buy a house? And why should the government take that risk if banks won't?
