[ad_1]
Washington has learned that the Trump government will finally reform Fannie Mae and Freddie Mac. The bad news: what is being considered right now is not a reform, but a replica of policies that have fostered one of the most catastrophic financial disasters in history.
The Congress created Fannie and Freddie decades ago to promote homeownership for the middle class by buying mortgage loans from banks, turning them into securities and lightening the risk for investors.
The thought was that since banks did not like making 30-year fixed-rate loans to most people, the risk of default and the vicissitudes of interest rates over such a long period make it a lousy business. the heavy hand of the federal government was necessary.
Thus, Fannie and Freddie would sell government-guaranteed bonds at low interest rates, use the proceeds to find mortgages from banks, and then pack them into (supposedly) less risky bonds sold to investors. They called it "securitization".
It was the idea the reality turned out different. Over the years, Fannie and Freddie have become public companies – a strange thing, since they were created by congressional acts and supported by the federal government.
Their stocks have skyrocketed with soaring housing prices – a boom that both agencies have achieved by allowing more and more people to buy a home, even for those who can not afford to pay for it. payments. As long as the real estate bubble gained momentum throughout the 2000s, Fannie and Freddie's profits resisted accounting scandals and huge salaries paid to the quasi-bureaucrats who ran the project.
Then came the implosion, starting in 2007. Default rates soared, while Fannie and Freddie began to announce huge losses.
In 2008, just before the general collapse of banks, Fannie and Freddie were heading towards insolvency. The federal authorities spent $ 200 billion of taxpayers' money to prevent their collapse and put them in a situation called "conservatism".
Fannie and Freddie were forced to do what they had as direct arms of the government ever since.
The Trump Administration has taken office, determined to change this state of affairs. Almost from the first day, Treasury Secretary Steve Mnuchin, a former Goldman Sachs mortgage banker, touted an alternative to Fannie and Freddie's free market to take the government out of the mortgage business – and prevent taxpayers from getting screwed up at new. What he meant by that is what everyone guesses.
The timing is good. Fannie and Freddie still earn money and have more than repaid what they have received in bailout.
So, at least on paper, they are ready to be released from the government. The appointment of Mark Calabria, a former economist at the Cato Institute (free market), for agency management seemed to be a step in the right direction.
Calabria has questioned the necessity of Fannie and Freddie. He also wondered why the 30-year mortgage should be preserved if there really is not a private company that can make money without the support of the government. And he pointed out how, in countries like Canada, mortgage securitization and homeownership rates are much less important.
So what is the problem?
Calabria sang a different tune in its confirmation hearings before the Senate. "It is indeed possible for us to have a well capitalized and strong system that preserves the mortgage over 30 years," he told lawmakers last week. He added, "I want to make it very clear to this committee that, if it is confirmed, my role. . . is to concretize the clear intention of Congress and not to impose my own vision. "
He did not seem to have wondered whether the government should withdraw from the mortgage market. Nor does he seem to have mentioned that the only reason Fannie and Freddie earn money is because taxpayers subsidize their loans. The vision that he promoted was more or less the same.
Meanwhile, Liberals like Maxine Waters, who now chairs the House's Financial Services Committee, still want Fannie and Freddie to insure risky mortgages, which can only create another bubble similar to the one that erupted in 2008. .
Powerful financial forces are also looking to take advantage of the next step of Fannie and Freddie. Hedge funds have recovered the shares of these companies at lower cost in the hope that the government will end its conservative functions and return the profits to the shareholders.
Everyone has a say in the future of Fannie and Freddie, with the exception of the taxpayer.
Charles Gasparino is Senior Correspondent for the Fox Business Network. Twitter: @CGasparino
[ad_2]
Source link