The mortgage giants are running out of cash – and it seems no one can agree on how to fix the problem
Fannie Mae and Freddie Mac will run out of money on Jan. 1, 2018, leaving any losses on the shoulders of taxpayers, according to a Bloomberg report.
The two government-sponsored enterprises have already teetered on the brink of collapse; in 2008, they were given a $187.5 billion bailout – which they have since repaid – by the federal government. And while few predict another collapse of that magnitude, little has been done to reform the GSEs. Earlier this month, the Federal Housing Finance Agency said Fannie and Freddie could need another bailout – to the tune of $126 billion – if the economy were to take another nosedive, Bloomberg reported.
While Fannie and Freddie have more than repaid their bailout money – they’ve sent the Treasury $251 billion in dividends over the years – they’re still sending their profits to the government rather than retaining them as operating capital. FHFA officials say that the arrangement makes at least a small bailout inevitable, Bloomberg reported.
“The most serious risk, and the one that has the most potential for escalating in the future, is the enterprises’ lack of capital,” FHFA Director Mel Watt said in a speech on February.
And it seems no one knows what to do with the GSEs. Republicans want to kill them, saying Fannie and Freddie represent a “corrupt business model.”
“I’m concerned that we exit this situation without fixing the original problem,” Rep. Ed Royce (R-Calif.) told Bloomberg. “The status quo of a nationalized mortgage market is unsustainable for taxpayers.” Royce said he planned to introduce a bill in the near future that would require the GSEs to transfer more risk to the private market.
Some Democrats, meanwhile, have toyed with the idea of merging them into one government-owned corporation, according to Bloomberg. Others have suggested turning them into “mortgage utilities” with capped rates of return. And neither Hillary Clinton nor Donald Trump have really dealt with the issue at all.
And others think all reform proposals are doomed to fail. John Taylor, head of the National Community Reinvestment Coalition, said the GSEs should be allowed to build capital and released from government conservatorship. He told Bloomberg that think-tank libraries “are filled with all these treatises with proposals from a year to 40 years ago that are simply gathering dust.” The latest reform proposals, he said, are likely “going to end up in the proverbial stockpile.”
The two government-sponsored enterprises have already teetered on the brink of collapse; in 2008, they were given a $187.5 billion bailout – which they have since repaid – by the federal government. And while few predict another collapse of that magnitude, little has been done to reform the GSEs. Earlier this month, the Federal Housing Finance Agency said Fannie and Freddie could need another bailout – to the tune of $126 billion – if the economy were to take another nosedive, Bloomberg reported.
While Fannie and Freddie have more than repaid their bailout money – they’ve sent the Treasury $251 billion in dividends over the years – they’re still sending their profits to the government rather than retaining them as operating capital. FHFA officials say that the arrangement makes at least a small bailout inevitable, Bloomberg reported.
“The most serious risk, and the one that has the most potential for escalating in the future, is the enterprises’ lack of capital,” FHFA Director Mel Watt said in a speech on February.
And it seems no one knows what to do with the GSEs. Republicans want to kill them, saying Fannie and Freddie represent a “corrupt business model.”
“I’m concerned that we exit this situation without fixing the original problem,” Rep. Ed Royce (R-Calif.) told Bloomberg. “The status quo of a nationalized mortgage market is unsustainable for taxpayers.” Royce said he planned to introduce a bill in the near future that would require the GSEs to transfer more risk to the private market.
Some Democrats, meanwhile, have toyed with the idea of merging them into one government-owned corporation, according to Bloomberg. Others have suggested turning them into “mortgage utilities” with capped rates of return. And neither Hillary Clinton nor Donald Trump have really dealt with the issue at all.
And others think all reform proposals are doomed to fail. John Taylor, head of the National Community Reinvestment Coalition, said the GSEs should be allowed to build capital and released from government conservatorship. He told Bloomberg that think-tank libraries “are filled with all these treatises with proposals from a year to 40 years ago that are simply gathering dust.” The latest reform proposals, he said, are likely “going to end up in the proverbial stockpile.”
