During the early part of 2010, some of the leading House Republicans thought it would be a good idea to either put the mortgage giants Fannie Mae and Freddie Mac into receivership or privatized them. However, now that republicans have gained control of the House, they seem to be in less of a hurry to pull the government support given to Fannie and Freddie. We are more likely to see the withdrawal of support for the mortgage giants progressively over a period of time rather than some immediate effort to privatize the mortgage firms.
The republicans have come to recognize that privatizing the firms is something that cannot be done immediately. The removal of government support from Fannie Mae and Freddie Mac could easily have a negative impact on the nation’s already decimated housing market. Therefore, a certain amount of caution needs to be used. The removal of government support is something that needs to be well planned out with safe guards in place.
Fannie and Freddie where placed into government conservatorship after that they nearly went under as the crumbling housing market brought about losses that they could not keep up with. To keep the mortgage giants from failing completely the government placed them in conservatorship in September 2008. Keeping them from going under has cost taxpayers an estimated $134 billion and that number is growing. The mortgage giant’s federal regulator estimates that Fannie and Freddie will cost American taxpayers another $20 billion more.
When the housing bubble burst, the government became the largest source of financial support for mortgage lending throughout the United States. If the government were to quickly withdraw their Support from Fannie Mae and Freddie Mac, the companies would not be able to cover the backing of the majority of the nation’s mortgages. That would likely lead to a decrease in available mortgage loans. This in turn will cause home prices to drop because no available loans means no home sales.
If the government is adamant about lessening their role in the mortgage market, they could reduce the maximum size of loans that they allow Fannie Mae and Freddie Mac to purchase. If they were to reduce the limit, more investors could be encouraged to purchase mortgage-backed securities that do not have the government backing. That would equate to higher yields.
See also:
Fannie and Freddie Phased Out
Trackbacks / Pings