Mike Fratantoni is the chief economist and senior vice president of research and business development at Mortgage Bankers Association (MBA). He stresses the importance of Fannie and Freddie to the overall industry.
“Obviously, they are critical, providing liquidity to the secondary market, and supporting the provision of affordable housing on both the single-family and multifamily sides,” Fratantoni told Mortgage Professional America. “If you look at numbers, they are maybe half of the origination volume on the single-family side, and about 40% of the multifamily side. They are really important enterprises.”
Safeguards still needed
In 1938, Congress created the Federal National Mortgage Association, better known as Fannie Mae. It was joined in 1970 by the Federal Home Loan Mortgage Corporation, or Freddie Mac. This move provided competition and stability in the secondary market.
By the 2000s, the two GSEs had grown into massive companies. However, in the effort to continue to push that growth, excessive risks were taken, which led in part to the housing collapse of 2008. The government was forced to bail them out.
“If you look prior to 2008, they were really quite forces of nature,” Fratantoni said. “They tended to really be pushing to grow the companies and grow their profitability. Over time, they took a bit too much risk, failed in 2008, and had to be rescued by the Treasury. So, $200 billion or so of taxpayer money was put into keeping them solvent, which was successful to the extent that it kept the secondary market open. But they have been in conservatorship ever since.”
