What’s Next for Fannie and Freddie? By Ken Fears
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n June, Sandra Thompson became the acting head of the Federal Housing Finance Agency (FHFA) after a Supreme Court ruling that allowed President Biden to replace the previous director. This appointment will likely have significant impact on FHFA, which oversees Fannie Mae and Freddie Mac. And since 50% - 60% of home sales depend on these government-sponsored enterprises (GSEs) for funding, FHFA is critically important to REALTORS® and their businesses. Fannie Mae and Freddie Mac are federally backed home mortgage companies, created by Congress to free up financial institutions’ balance sheets. Neither company originates or services mortgages. Instead, they buy loans from lenders, package them as mortgage-backed securities, and sell them to investors globally with a guarantee—resulting in a unique system without which millions of people would be locked out of homeownership. Together, these companies provide a liquid, stable 56 September 2021 RISMedia’s REAL ESTATE
and affordable housing market, even during a crisis, as happened in 2008 and 2020. The Great Recession Before the financial crisis of 2008, the GSEs got into trouble by buying an outsized number of private-label mortgage-backed securities (PLS) that were loaded with risky subprime mortgages. When the housing market slowed, these toxic loans sent default rates soaring and nearly destroyed the market. The govern-
ment stepped in, bailed out Fannie and Freddie, and took controlling ownership. In response to the crisis, Congress created FHFA in 2008 to regulate the GSEs and operate them under conservatorship, a system that remains today. The Pandemic COVID-19 put Fannie and Freddie to an unprecedented test, and overall, they performed as designed. During this crisis, they provided the rescue for many mortgagees by taking immediate actions like issuing a foreclosure moratorium and offering forbearance before Congress required it. The GSEs leaned in when much of the private market left, causing their marketshare to surge from about 40% to well over half the market, valued at over $10 trillion. Rates fell to pre-crisis levels, home sales rebounded, and housing became and remains a bright spot in the economy.
