Money Matters, Simplified.
Barney Frank suggests abolishing Fannie, Freddie
by Ishita Sood - January 24, 2010 - comments
Based in Washington, Fannie Mae guarantees home loans worth $5.5 trillion along with its counterpart Freddie Mac. Both the institutions are vital to build the mortgage market in U.S. They not only buy loans from lenders but also insure them against default.
New York, January 24 -- It might be the end of America’s known mortgage houses Fannie Mae and Freddie Mac. Barney Frank, chairman of the House Financial Services Committee (House Banking Committee), said Friday that the two finance giants are likely be replaced with a new system for housing finance.
“I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance. That’s the approach, rather than the piecemeal one,” said Frank.
However, Frank said no specific future model was proposed for the enterprise till now.
A Democrat from Massachusetts, Frank has always been a staunch supporter of the two financial institutions.
Fannie and Freddie facing losses?
In 2008, the U.S. government had helped the institutions from the mounting losses it had been facing. Fannie and Freddie had received $112 billion in federal aid at the time.
However, Frank differed with the losses of the firm and said, “These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.
The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Freddie Mac and Fannie Mae vital for U.S. mortgage market
Based in Washington, Fannie Mae guarantees home loans worth $5.5 trillion along with its counterpart Freddie Mac. Both the institutions are vital to build the mortgage market in U.S. They not only buy loans from lenders but also insure them against default.
Due to news of shutting down of Fannie and Freddie, many analysts feel that it won't guarantee financial stability in the market.
“Blue sky ideas are great, but they take a long time to happen. When you have $5 trillion of agency mortgages, you can't really orphan them,” said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.
Freddie Mac, also called Federal Home Loan Mortgage Corporation (FHLMC), has been facing consistent losses along with sister concern Fannie Mae, called Federal National Mortgage Association (FNMA).
Fannie Mae said on Friday that its mortgage rates have only fallen from 5.06 percent to 4.99 percent last week. This is comparatively less as compared to the predicted results.
Shares of both companies sank with Friday’s news. Fannie Mae went down by 7.5 percent, while Freddie Mac slipped by 10.7 percent.