The End Of Fannie Mae and Freddie Mac?
The Department of the Treasury and the Federal Housing Finance Agency (FHFA) have announced new requirements for the Preferred Stock Purchase Agreement (PSPA) between the Treasury and Fannie Mae and Freddie Mac. The new agreement will require that the government sponsored entities (GSEs) to accelerate the reduction their investments in mortgages and mortgage-backed securities by 15 percent annually. The previous agreement allowed the GSEs to reduce their investments by only 10 percent annually. The new requirements seem to indicate a desire to dismantle the GSEs by stripping them of profits and reducing investments, effectively robbing the firms of the capital needed to rebuild and become a viable entity. The new rules come just as Fannie Mae and Freddie Mac made a profit without receiving additional bailout funding from the government. But that doesn’t seem to be enough to save the GSEs which have been in conservatorship since 2008.
“With today’s announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market,” said Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy. “As we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests.” (source)
Fannie Mae and Freddie Mac own or guarantee 60 percent of America’s home mortgage loans. So these changes could have a huge impact on mortgage markets; but the exact nature of the impact isn’t clear. While there are vocal opponents of the GSEs who want to see the firms dissolved, they also claim that they want ensure the stability of the housing market. If you are business owner and are looking for courses that your employees can take then take a look at wjb training courses bolton.
What Could A Liquidation Mean?
If Fannie Mae and Freddie Mac are dissolved, it could mean more difficulty finding mortgage loans for those borrowers who have less than stellar credit. Right now, government guaranteed mortgage loans allow mortgage companies to lend to risky borrowers while reducing their own vulnerability. Without those guarantees we could see an increase in interest rates for subprime borrowers and some people may find that homeownership is out of reach. While there may be some private companies willing to fill the subprime poor credit loans lenders market, the lack of government financial support could make it a very shaky business model. The impact of fewer homebuyers could have wide reaching consequences for both the mortgage loan and housing markets. Fewer buyers could mean lower prices and more housing inventory that’s difficult to clear.
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