The gravy train at Fannie Mae and Freddie Mac keeps pouring out millions in pay to the top executives running the disgraced tax-funded mortgage companies no matter how poorly they perform. As CNNMoney.com reported Dec. 31, Fannie (FNMA) chief executive officer Michael Williams and Freddie (FMCC) CEO Charles Haldeman each stand to rake in $6 million as indicated by company filings that outline pay guidelines, plus deferred compensation of an unknown amount.
These are rewards for a period when the federally supported companies suffered $28 billion in losses through three quarters of 2010 as well as running up the bill at the U.S. Treasury of $150 billion. How proud all Americans must be, especially those on whose homes have been foreclosed. And to think these appointed “saviors” of the housing market now run the biggest lenders of risky mortgages that were largely the cause of the housing bubble and the ensuing collapse of the American economy.
Today Freddie and Fannie and the 12 federally sponsored home loan banks provide $5.9 trillion in funding for the country’s mortgage market and financial institutions. Fannie and Freddie, referred to as “government sponsored enterprises,”or GSEs, have always had a mission, at least in theory, of socially desirable lending. They have bought mortgages from banks, packaged the loans into financial securities and sold them to investors in the secondary market. The GSEs were encouraged by liberal Democrats in Congress to make excessively risky loans to make the “American Dream” of home ownership possible for even the poor and irresponsible.
Freddie and Fannie have now become the biggest and deepest black holes for taxpayers as we creep out of the recession. The Christian Science Monitor in a story in August said the mortgage giants had become a $5 trillion question. They fell into a bankruptcy-style conservatorship two years ago. They now own or guarantee about half the mortgage debt in the U.S. The capacity of the housing market and the economy itself largely depends on what happens to them. In a conference on how to reform the GSEs, it was generally agreed that the risk in future recessions could be even worse without Fannie and Freddie or some system to ensure that mortgage credit is available even during another banking crisis.
The Obama Administration has yet to come up with an approach to GSE reform. Any reform was notably missing from the huge Dodd-Frank financial reform law Obama signed in July. A battle in Congress this year is expected to ramp up over what to do. It will reflect the split that has existed for years between Democrat and Republicans, with the latter pushing for scaling back government’s role in the housing market.
The Wall Street Journal reported Dec. 21, however, that Republicans aren’t in a huge a hurry to privatize Fannie and Freddie as they had proposed earlier. “We recognize that some things can be done overnight and some things can’t be,” Rep. Scott Garrett (R-N.J.) said. He is the incoming chairman of the House Financial Services Subcommittee which oversees the lending giants. “You have to realize what the impact would be on the fragile housing market as it stands right now,” he added. Keeping Fannie and Freddie alive cost taxpayers about $134 billion so far. The companies’ federal regulator estimates the costs could amount to another $20 billion.
When the Dodd-Frank financial overhaul was being debated, Republicans were behind a bill by Rep. Jeb Hensarling (R-Tex). It would have started to cut the government’s nursing of the twin lenders over a couple of years and then take them off the public teat and make them fully private entities in five years. But too quick an end to the government support of Fannie and Freddie would mean fewer home seekers could get loans, causing home sales and pries to fall even farther, This would push taxpayer costs for rescuing the twin giants even higher, according to Rep. Randy Neugebauer (R-Tex), a former banker and real estate developer, who is on the House Financial Services Subcommittee.
Peter Wallison, a senior fellow and financial scholar at the American Enterprise Institute (AEI) has said that doing away with Fannie and Freddie and revitalizing he mortgage market would be the best solution. He testified before the Senate Banking Committee that there are still many government programs that could lend money to those seeking to buy homes if Fannie and Freddie were liquidated. But he said at this point the private market has evaporated and may not easily be put together again.
The Long-awaited Treasury Department’s recommendation for overhauling Fannie and Freddie is expected this month. The Obama Administration officials have been toying with the idea of whether to include a federal backstop that could act like a catastrophic insurance fund the Wall Street Journal said, to be used in case of another housing market blowout.
“Obama Administration officials are struggling to reach consensus” on the future of mortgage giants, a Wall Street Journal article said. But Obama Administration struggled always seem to end up with us taxpayers getting the bill.