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The future of Fannie Mae and Freddie Mac: Flourish, fizzle, or fuse

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Posted: Friday, October 18, 2013 7:12 am

I had the great privilege of listening to a few top industry professionals debate this issue while at the business meetings of the California Association of Realtors in Long Beach last week. Often times, as with most political arenas, deciphering through the rhetoric double talk can lead most listeners tone deaf and frustrated. But this meeting was one of the better highlights on the agenda so I thought I’d pass the info along.

We can all agree that some type of reform is needed. The systems currently in place are old and outdated. Each is requiring close to $3 million in updating for a total of $6 million. Did you know that Freddie Mac was originally created for savings and loan companies while Fannie served thrifts and banks? Since savings and loans have been gone by the wayside there really isn’t a need any longer for the two entities. Some would argue there needs to be completion, while others contend consolidation would save $3 million in updates by eliminating one of the entities.

Another interesting note is that many banks are looking to use the Freddie/Fannie model when creating their investment practices. So even though the systems in place are ancient; the core structure is sound enough to have it replicated by other banks.

Keeping the status quo might reveal more and more profits from the entities. While profit is not a bad thing, it’s just that congress typically uses these profits to piggyback the profitability. Surprisingly the Gulf Coast clean-up was one such piggyback used to finance the costs.

So how do we reshape these systems? Do we have them continue to compete with each other? Make the bonds interchangeable? Consolidate? Joel Singer (California Association of Realtors association executive) made a good point in that the first conversation has to start with the question “Is some sort of subsidization of homeownership desired?” Does America value it and all that it brings to the economy?

For the time being most of these questions will be unanswered as it seems it could take possibly 10 years before anything happens. Congress is looking at bigger fish to fry (debt ceiling, re-elections, etc). While no quick fix appears on the horizon rest assured that your local Realtors will be deeply embroiled in the issues as it progresses and we’ll keep you up to date along the way.

Sheri Aguilar is the president of the Lodi Association of Realtors and can be reached at Sheri@YourLocalAOR.com

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