Stay the path

22 May 2013 By Daniel Indiviglio

Uncle Sam’s seizing of Fannie Mae and Freddie Mac in 2008 marked one more failure in a sorry decades-long history. Their misdeeds ranged from strong-arming politicians to cooking the books. They shouldn’t now get a pass just because their profits are again helping Washington.

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The American Enterprise Institute, a Washington think tank, on May 15 hosted a panel discussion on what should be done with Fannie Mae and Freddie Mac. The experts opining on the two U.S. government-run housing finance agencies included former members of the administrations of both Presidents George W. Bush and Barack Obama, as well as a mortgage banker. Although they disagreed on the details, all appeared to agree that the companies should be wound down as a first step toward reform and that the government’s footprint in the mortgage market should shrink.
Between Fannie, Freddie and other channels, the U.S. government currently guarantees about 90 percent of all new mortgages.
The Senate Banking Committee on May 14 held a hearing to discuss strategies for returning private capital to the mortgage market. The experts called to testify all envisioned some continuing level of government support, but suggested it would be wiser to guarantee securities rather than firms.
Fannie said on May 9 that it would pay the U.S. government a dividend of $59.4 billion, in large part thanks to a realized gain on a deferred tax asset. Freddie has a similar $30 billion tax benefit that it may eventually cash in.
Several large hedge funds, including Paulson & Co, Perry Capital and Carlyle Group-controlled Claren Road Asset Management, are lobbying lawmakers in Washington to privatize Fannie and Freddie, according to an April 30 report from Bloomberg.

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