Fannie Mae and Freddie Mac are... doing just fine!

A week ago I wrote a post entitled "Inappropriate vilification of Fannie Mae and Freddie Mac" about how the housing GSEs are far from being villains in the financial crisis were in fact victims of Wall Street excess and are in fact now part of the solution to the crisis. Today, I read in an article on MarketWatch by Steve Kerch entitled "Back on track - Fannie Mae, Freddie Mac fulfilling housing mission, regulator says" that:

Fannie Mae, Freddie Mac and the Federal Home Loan Bank Boards are doing "business as usual," their regulator said Wednesday...

"They are out playing their role, fulfilling their missions," said James Lockhart, director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac in their government conservatorship. "They are buying assets and guaranteeing mortgage-backed securities. And they have plenty of room on their balance sheets now to buy assets that will support those missions."

"It really is business as usual. We are encouraging them now to be more creative," Lockhart told a ballroom crowd at the Urban Land institute fall meeting here. "In this marketplace we really need Fannie and Freddie to provide liquidity and support."

...

"I think next year you'll see that that are profitable again and hopefully they will be able to attract investors again," he said.

As far as I can tell, very little has changed since Treasury put the two housing GSEs under a federal conservatorship. There was a change of only top executive management, a little bit of re-org, and the establishment of $100 billion credit facilities to make explicit the long-time implicit guarantee of government backing, but no real change in overall strategy or operation. In other words, no hint that there was anything going on within the housing GSEs that would have caused the financial crisis on Wall Street.

The key factor in their takeover by Treasury was not that they were doing anything "bad", but that their stock had been driven so low that they were unable to raise capital. In truth, Treasury could have simply given them the $100 billion credit facilities and otherwise left them alone, but there is another agenda here to essentially eliminate them, eventually, as competition for business that Wall Street will one day want again.

Actually, it would have been much better to give Fannie and Freddie the $700 billion and instructed them to buy up mortgages and MBS at market prices. After all, they are already set up to do exactly that because that was essentially always a part of their mission (to support the mortgage market.) The basic problem was that the Republicans hobbled the GSEs with "reform" back in 2002 and 2003 which restricted the amount of mortgages and MBS that they could buy rather than leaving it open-ended and funded by a huge Treasury credit facility as it is right now.

It will be interesting to see what the next presidential administration will set as its priorities. Top priority will probably remain having "entities" that perform the current GSE functions and "support" the housing and mortgage markets. Whether such entities should be publicly-held companies is an open question. I do not think many Democrats care about that angle, as long as the entities do their job. Oddly, it is Republicans who should want them to be normal businesses, but it is the Republicans who fought them and finally turned them back into a purely government operation, all because of Wall Street greed and influence peddling.

-- Jack Krupansky