Could the Agencies actually privatize?

[Mark K]

exactly! If they were truly privatized, the fall out would be simply catastrophic to the US (and world) economy(s).

I don't know how F/F could be run more poorly than they currently are. IIRC, they weren't privatized during the last meltdown.

Privatization might take some of the high risk buyers out of the pool but maybe they shouldn't be there in the first place. Making high risk loans in order to keep the economy/housing sector rolling along is not a good long term policy.

Besides, the loans would probably be guaranteed by the Feds in some manner so the bond market wouldn't care much. Guaranteed in a similar manner that the FDIC guarantees deposits for private banks.

 

[George Hatch]

Mission creep. Fannie was created to fill a hole in our economic system which no longer exists.

History​

FNMA was created in 1938 to establish a secondary mortgage market for loans insured by the Federal Housing Administration. In 1968, Fannie Mae became a shareholder-owned company that could buy any mortgage, not just those insured by the government. Its stock was listed on the New York Stock Exchange.​

 

[djd09]

ha. what a mess. hiring some outside company to fix it. charge it. only 45 million.

have they ever paid their last stockholders. of course not.

 

[alebrewer]

rivatization might take some of the high risk buyers out of the pool but maybe they shouldn't be there in the first place.

I don't think there's any question at all about that - again, though, once Pandora's box has been opened, it is REALLY painful to shut it.

Making high risk loans in order to keep the economy/housing sector rolling along is not a good long term policy.

It is unless there is a downturn...

 

[alebrewer]

Mission creep. Fannie was created to fill a hole in our economic system which no longer exists.

History​

FNMA was created in 1938 to establish a secondary mortgage market for loans insured by the Federal Housing Administration. In 1968, Fannie Mae became a shareholder-owned company that could buy any mortgage, not just those insured by the government. Its stock was listed on the New York Stock Exchange.​

Their mission has absolutely changed. Something I'm not opposed to per se, as governmental agencies change and adapt as culture, policies, etc. change over time. I would disagree, though, that 'a' hole doesn't still exist (and no, I don't mean a-hole). There absolutely is a strong demand for 'below market' terms for housing for folks who otherwise wouldn't be able to secure funding in a completely privatized economy. Now, the question can be raised on whether the government should be involved in that - and I personally don't believe that is a legitimate role of government, but in a prosperous society, where we have all manner of public assistance (some good, some bad), I don't see 'affordable housing' as any different than any other form of theft by taxation.

 

[glenn walker]

The two questions that have to be answered:

1. Does Private Fannie have the Full Faith and Credit of the US government behind it? If not, then it has the same risk as any under-capitalized corporation.
2. How much does the Govt get for its efforts. As an 'angel' investor does it own 10% of Fannie or 95% of Fannie.

It severely bothers me that Ex-Treasury Chief Hank Paulson owns shares in the existing Fannie.

1- YES
2- Fannie is in Federal Receivership- AKA Bankruptcy and takes up to 100% of any profits. And no they are not an-Angel Investor essentially, they own it lock , stock and barrel.
3- As far as Hank Paulson owning shares, lots of former Fed and X-Politicians own shares, how do you think you get wealthy, you get insider tips and act on them

 

[George Hatch]

Their mission has absolutely changed. Something I'm not opposed to per se, as governmental agencies change and adapt as culture, policies, etc. change over time. I would disagree, though, that 'a' hole doesn't still exist (and no, I don't mean a-hole). There absolutely is a strong demand for 'below market' terms for housing for folks who otherwise wouldn't be able to secure funding in a completely privatized economy. Now, the question can be raised on whether the government should be involved in that - and I personally don't believe that is a legitimate role of government, but in a prosperous society, where we have all manner of public assistance (some good, some bad), I don't see 'affordable housing' as any different than any other form of theft by taxation.

I probably hold the minority opinion on this but I think our govt already uses both FHA and VA as entitlement programs towards social goals. Beyond that, I think the ramifications of govt competing with commerce by use of taxpayer subsidies creates a moral hazard that extends beyond the conduct and performance of the GSEs themselves and extends to the problem of TBTF.

Back in the day the local lenders effectively had no secondary market to address their liquidity issues. That is clearly no longer the case. So when the GSEs function as the dominant players in the secondary market and they're not allowed to fail that enables them to do things in their policies that they wouldn't be so quick to do if it was their own cash on the line. It also stifles competition in the market as well as mitigating the demand for more rigorous due diligence. IMO

I think Fannie and Freddie can proceed without the crutch of the favorable terms. I also think that doing so would compel some major changes on their part. As the cliche goes, "bad deals are made during good times".

 

[Mr Rex]

I agree. Given the RE market in most markets, there is no reason for the artificially low interest rates that the powers that be have relied upon to keep the overall economy going and created an artificial increase in values. There will come a day of reckoning, the big heads better start easing into the cold and deep water ASAP or its going to be another 2008 or worse. MHO. FWIW, after a couple of slow years after 2008, I had some really good years doing REO and pre-REO work so I'm not worried about it from that perspective.

 

[George Hatch]

More than one pundit has commented that we have been having financing bubbles, not RE bubbles.

 

[Mr Rex]

Agree or disagree, I think the US economy was on the back of the Tech sector bubble pre 2001 and when it blew up everybody said to themselves and outwardly that RE never goes down and the onus was on the RE sector until it blew up. Currently the economy is coming back in other areas, but is still overly dependant on the RE market to our eventuaL detriment IMHO. Trump back slaps himself over economic gains but chastises the Fed for even considering rate increases. Its going to get ugly at some point unless the economy goes nutso beyond any past history. But then again, if some of the crazy socialist stuff on the table right now in an election year materializes, the economy is road kill and all bets are off. MHO.