New Twist in the Fannie Mae and Freddie Mac Debate

Fannie Mae

Fannie Mae

After having received almost $150 billion in bailout money from the Obama administration, Fannie Mae and Freddie Mac still continue to post losses, with the combined losses of these two mortgage giants in the last quarter being somewhere in the region of $9 billion.

However, a decision with regard to the future of these two failing mortgage giants has been repeatedly postponed by the administration until the housing market stabilized. Although administration officials are set to meet with mortgage industry executives at a summit on Tuesday to discuss the future of Fannie Mae and Freddie Mac, these discussions will be affected by the latest problems in the housing market, with home sales having reduced dramatically and home prices also predicted to drop.

Laurie Goodman, a Senior Managing Director at mortgage-bond trader Amherst Securities Group LP in New York, commented on the administration’s plans to discuss the future of Fannie Mae and Freddie Mac in the upcoming summit, “There’s been a feeling in government, which seems to be more pervasive than it was six months ago, that says, ‘We’ve solved this housing problem; let’s move on to Fannie and Freddie.’ But you haven’t solved this housing problem. We have another round of home prices going down a little more.”

The latest trends in the housing market will however impact the talks at the upcoming summit, making it unlikely that any major restructuring of the two mortgage giants will take place. “It pulls the debate in the opposite direction. If we’re stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable,” said Howard Glaser, an industry consultant.

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