There have been lots of ideas about how to restructure Fannie Mae and Freddie Mac, the twin government-sponsored enterprises (GSEs) that purchase the vast majority of residential mortgage loans originated in the U.S. But the one idea that I haven’t heard mentioned, which seems to make the most sense, is: Don’t do anything.
The two agencies used to be hybrid public-private entities, their stock owned by investors but with an “implied” government backing of the mortgage-backed securities they sell. Both of them failed during the global financial crisis, burdened with billions of dollars of bad subprime loans, and were taken over by the government in 2008. Although they remain in conservatorship to this day, they remain the backbone of the American residential mortgage banking system. Continue reading "Want To Solve The Fannie-Freddie Quandary? Do Nothing"→
A recent research report says it does a better job than its competitors of modifying mortgages for struggling homeowners to enable them to stay in their homes. At the same time, some of its bondholders are complaining it does too many modifications at their expense. All along, the company has been the focus of state and federal regulators and consumer groups for supposedly abusing the subprime borrowers it services.
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