Fannie And Freddie And The Foreclosure Blame Game

Posted in Foreclosure Homes, September 15th, 2008 |

The two jumbo mortgage bodies Fannie Mae and Freddie Mac are being targets of the foreclosure blame game by many. To save the two units, that hold nearly half the mortgages of USA, the federal government has stepped in.

In the middle of the raging foreclosure crisis the taking over of Fannie and Freddie has placed a lot of responsibility on the new regulator. On the one hand foreclosures have to be contained and on the other hand remedial measures have to be taken to rejuvenate the sick housing market. All this juggling has to be done taking into account that the money belongs to the taxpayers.

The Federal Finance Agency has taken over the reins of these two mortgage companies that guarantee house loans worth about $5 trillion. The agency made its debut last summer. It now has direct control in supervising the activities of the two companies. The board of directors of the companies have been done away with and replaced by this agency.

The FHFA has the right to deflate the financial remuneration of the outgoing executives and fix the salaries of the new entrants. The new incumbents would be getting considerably less pay packets.

Although the government has downed shutters on the powerful lobbying operations of Fannie Mae and Freddie Mac there still is enough influence floating around in this foreclosure weather to bend the agencies actions as regards the role of the duo in the foreclosure market. In all probability the realtors, mortgage brokers and developers will expect rolling back of fees and easing of the lending formalities to make up for the losses suffered due to defaults and foreclosures. JerryHoward of National Association of Home Builders feels “the faster and more energetically (Fannie and Freddie) are in the game, the faster the anticipated bottom of the housing market can be reached.” His argument is that the more they tighten “the more pain is felt through the entire industry.” But reacting to the foreclosure crisis Fannie and Freddie have increased the fees for borrowers who do not have high credit marks and are simultaneously asking for larger down payments. This is going to stifle demand for housing and hold back sale of houses. On the other hand if the agency allows the lending standards to fall too back then there is the risk of another financial crisis. So it is really tight rope walking for FHFA while foreclosure clouds continue to gather force.