In 2006, Fannie Mae and Freddie Mac controlled 30% of the home mortgage loans. They now control about 70%. The FHA and VA back up 21% from 2.8% (they are managed by Ginnie Mae – the Government National Mortgage Association – a subsidiary of HUD). They are all taxpayer-backed mortgages and account for more than 90% of the nation’s mortgages.
The housing market has, in essence, been nationalized or socialized. It crept up on us in a little over four years.
Fannie and Freddie are supposed to make certain the funds are available for mortgage loans of choice whereas the FHA and VA make housing affordable for people who might not be able to purchase them without government-backing. Fannie and Freddie are now government-backed which means taxpayer-guaranteed. The lines between them are now blurred.
Since the 2008 financial crisis, housing giants, Fannie and Freddie, have become a government hybrid and they cost the taxpayer about $6.5 billion annually, and there is no limit to how many times we will bail them out. They have also become the government kitty. The government now uses its allocated funds for pet projects not related to housing.
As government-sponsored enterprises (GSE’s), their main job is to guarantee mortgages to make homeownership available to the majority of Americans (US public policy) but they also make a profit and are to some degree private.
These entities helped create the housing bubble prior to 2008 which triggered the crisis. The subprime mortgages went from a minute share of the housing market to 50% and 70% of those were backed by Fannie and Freddie. Mortgages were given to people who could ill-afford them and many went into foreclosure.
Without these government guarantees, the subprime bubble and the resulting financial crisis would not have happened. Bank regulators and industry experts warned Congress for decades about Fannie and Freddie and their increasingly large and risky portfolios, but Congress failed to heed the warnings. The Democrats now admit this is the case.
The housing collapse triggered bank failures and bailouts. The government has been buying up bad assets – mortgages – from the banks as part of the never-ending bailout.
The government guarantees have kept the housing market functioning.
The government has been siphoning off money from Fannie and Freddie to pay for other ventures. They recently siphoned off ten years of Fannie and Freddie guarantees to pay for the temporary payroll tax cut for only two months. They have become a government ATM.
Edward De Marco, acting head of the Federal Housing Finance Agency, which controls Fannie and Freddie, has emphasized keeping a stable and fluid market as opposed to the government goal of subsidizing affordable housing. He recently rejected one plan to forgive the principal on delinquent loans at taxpayer expense. He has also acted to preserve Fannie and Freddie. He is the only person who stands between the taxpayer and the government spendthrifts.
The hybrid nature of Fannie and Freddie is causing frustration but no one will chance to get out of it. Geithner talked about it in 2011 and has since resigned.
Many believe it should be a government entity or a private enterprise, not a crossbreed. The right-wing of the Republican Party want a very limited government role with housing returned to the private sector.
Time Magazine, a purveyor of socialist thought, said it is time to nationalize the housing market, and indeed the Progressives inside the Democratic party want precisely that. We are essentially there.
The taxpayers are still on the hook for the too-big-to-fail banks which are even bigger and the government insures most of the $16 trillion dollar economy while it does not have the money to do so.
Rep. Jeb Hensarling, Chairman of the House Financial Services Committee, wants to end the conservatorship of Fannie and Freddie and let the private sector take the lead in the residential mortgage industry. Fannie and Freddie have cost the taxpayer in excess of $150 billion and we are on the hook for endless bailouts to this government ATM.
“The U.S. needs a new system that never places taxpayers at risk again, promotes homeownership at affordable levels, and transitions from the current model without disrupting the housing recovery taking place.” [American Banker]
We need to get the government out of the housing market before it is too late and we have accepted this crony socialist melding of private and government enterprise as a way of life. It will inevitably crash again, leaving the taxpayer on the hook.
There are numerous plans to revert mortgages back to the private sector. Check the sources below, particularly American Banker and AEI.