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Addressing Mortgage Malinvestment (Part III)

Fannie Mae and Freddie Mac continue to distort the mortgage markets and are nowhere near a proper wind down after four years in government conservatorship. I reviewed the SEC reporting for each of them over the past few years and found that they still have total assets in the range of $5 trillion, which has stayed steady for the past three years. I summarize my findings in an editorial in the Wall Street Journal today……

“At the height of the presidential election campaign, the Treasury Department issued a press release called "Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac” highlighted a new policy to scale back the pair's mortgage-investment portfolio at a rate of 15% per year, as opposed to their stated 10% rate. Reports from the Securities and Exchange Commission, however, suggest that these two government-sponsored enterprises—currently under federal conservatorship—may not be shrinking much at all. The Treasury announcement, coming near the fourth anniversary of the September 2008 government takeover of the mortgage behemoths, was made during an election campaign with a heavy focus on the health of the economy. The impression it left was that the most expensive of the 2008 bailouts was not much of an issue, as the transition back to stability in the mortgage market is well under way.”

For the full article.

I have also been busy with Freedom of Information Act requests to see if the government is considering placing Fannie and Freddie in receivership. There has been some movement on this front, but only some work being done by PricewaterhouseCoopers to lay out some options as reported by Bloomberg which included reference to a contract I dug up from the Federal Housing Finance Agency, the pair’s conservator.


  1. The majority of mortgages are, in one way or another, owned by the Federal government (and things it controls such as the "private" Federal Reserve).

    The United States is fast becomming a socialist country – and most of its "citizens" (the daytime television watchers who just relected Comrade Barack) do not even know.

  2. In a letter published in 2009 by the CATO Institute, its president Edward H. Crane wrote:
    “… [O]ur economic problems stem from government-mandated ‘blueprints’ for the housing industry. Politicians decided that everyone should own a home –whether they could afford one or not. Millions of Americans who couldn’t afford a home and would have been much better off renting were offered low-interest mortgages as a result of the Community Reinvestment Act and various regulations dealing with the securities rating agencies and the government-created and guaranteed Fannie Mae and Freddie Mac mortgage investment companies. Trillions of dollars were misdirected into mortgages as a result.”

    1. I would also like to add the FDIC to the list of culprits: Only the 9 banks that went bankruptcy in October 30th, 2009, cost the government $2.5 billion, because that same year the insured amount of customers' deposits was raised (until 2014) from 100k to 250k, with the purpose of increasing people's trust in the banking system and thus avoid panics and runs. Ironically, over 100 banks went bankruptcy in 2009, something unseen since 1992. One thing the FDIC did not account for -or at least underestimated- was the effect that this rise in insurance had on commercial banks' behavior: it made them more risk-takers by not having to face as much of the potential loss, leading to the over-expansion of credit that distorted the housing market by awarding home-loans to people that otherwise would not have gotten them.

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