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March 4th, 2010

Fannie & Freddie Reform Pushed Back One Year



Number five on HSH.com’s 2010 Outlook — a document that explores “the 10 Most Important Factors for 2010’s Mortgage Market” — stated that “Fannie Mae and Freddie Mac will change.” That’s no longer the case…At least for right now.

Yesterday, Treasury Secretary Timothy Geithner announced that the GSEs will stay as is for 2010, and will not be reformed or restructured until some time next year:

“We do not think it is necessary to consolidate the full obligations of Fannie and Freddie onto the nation’s budget but we do think it’s very important … that we make it clear to investors around the world that we will make sure that we will take the actions necessary” to keep the two companies stable, Geithner told the House of Representatives Budget Committee.

Geithner told the panel that the Treasury would lay out some “broad principles” for restructuring the two government-sponsored enterprises this year, but a full legislative proposal on their future would not be submitted until next year.

Regardless of the reasons Geithner or other Federal officials provide as to why the Fannie/Freddie reform has been delayed, we’re of the strong opinion that Washington isn’t ready to lose control of the entities that have been the main force behind their housing rescue efforts (HAMP, HARP, buying of bad loans, keeping mortgage rates low).

What’s particularly more troubling is that Washington seems content with the current structure of two companies that continue to hemorrhage taxpayer money:

Loans [guaranteed by Freddie Mac] over 90 days delinquent increased to 4.03 percent of all loans during January compared to 3.87 percent in December.  The delinquency rate in January 2009 was 1.98 percent.

From HousingWire.com:

The serious delinquency rate at government-sponsored enterprise (GSE) Fannie Mae rose nine basis points in January to 5.38% in the single-family mortgage book. Its a slight increase from 5.29% last month.

Furthermore, on Christmas Eve 2009, the U.S. pledged its unwavering financial support to Fannie Mae and Freddie Mac, offering them unlimited funding.

For at least the next year, Fannie Mae and Freddie Mac will likely remain at the forefront of the loan modification and refinance efforts, and at least for the next several months, will begin to buy hundreds of thousands of bad mortgage loans off the books of investors.

It will be interesting to see how or if the GSE’s roles change over the next year, and if Washington is willing to surrender them. “I could see Fannie and Freddie becoming the new TARP — an ever-changing policy tool for Washington to use at their disposal,” said HSH VP Keith Gumbinger.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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