The debate among Congress, the Administration, bankers, and financial experts has raged on since Fannie Mae and Freddie Mac collapsed into the arms of the federal government. Their portfolios of bad mortgages grew so great that they required tens of billions of dollars of taxpayer money. By many estimates that obligation will grow to hundreds of billions of dollars.
The fingers pointed at the two agencies have been based on the notion that they encouraged the growth of mortgages which were so outrageously liberal that homebuyers could get new homes which they could not afford. Once those homes were purchased, Fannie and Freddie took on the obligations of those mortgages as they were passed from banks to the agencies to help mitigate the risk on bank balance sheets.
The Mortgage Bankers Association means to get the two agencies dissolved although it is not clear what system it favors as a replacement.
The MBA has proposed in a letter to Alfred Pollard, the general counsel of Federal Housing Finance Authority, that a program of receivership be established to allow that current system to be dissolved. The MBA wants to know how the subordinated debtholders in the two agencies should be treated. To make the process more transparent, the MBA argues that Fannie and Freddie do not have direct relationships with homeowners. These relationships only exist through banks. The MBA has stated what is already clear to all the parties involved, which makes its observations nearly worthless.
The MBA also suggests that a system could be designed to liquidate the holdings of Fannie and Freddie the way that the FDIC does with failed banks. The problem with this is that the assets of failed banks sometimes go without buyers, which means taxpayers get the privilege of owning them.
The MBA also wants the Fannie and Freddie system for the servicing of loans to stay in place. That is to be expected from banks which do not want to be passed the finance burden which would go with the transfer of these functions.
The MBA proposal, although some of its makes sense, is only a framework to build a process that protects its members. As for the taxpayer, he holds the Fannie and Freddie bags now, so why should that change in the future?
Douglas A. McIntyre