The future of Fannie Mae and Freddie Mac is up for debate. A bill introduced by Senators Tim Johnson and Mike Crapo calls for the winding down of the mortgage giants. Given that both Fannie Mae and Freddie Mac have been instrumental players together in the U.S. mortgage industry for nearly 50 years, there is obvious speculation about what the future would hold without them. Will mortgage rates rise? Will getting a mortgage be even more difficult?
To find out more about the future of Fannie Mae and Freddie Mac, we interviewed Andrea Heuson, professor of finance at the University of Miami for her insight and perspective.
What do you think the government will ultimately do with Fannie Mae and Freddie Mac? What impact will this have on the housing market?
We need a federal government agency that acts as a securitizer of single-family mortgages, much the way Fannie Mae and Freddie Mac did from the time they were founded until the early part of the first decade of this century.
That is a role that is purely administrative. The entity or entities would not be publicly traded or have permission to purchase securitized mortgages. They would also not act as investors and the single-family market would be fine. Our mortgage market was the envy of the world in that it allowed for the flow of credit into long-term household debt very efficiently for many years. As long as we have that federal entity that handles the administrative aspects of securitization then our mortgage market will be fine.
The current arguments about Fannie Mae and Freddie Mac stem from the value of the equity position in them and the equity holders’ claim on the profits from the increase in the value of the mortgage-backed securities Fannie Mae and Freddie Mac purchased as investors, not from their role as securitizers.
