❗Help close the gap: We still need to raise $40,000 by the end of March. Donate now

Fannie and Freddie reach out and help

Bob Moon May 6, 2008
HTML EMBED:
COPY

Fannie and Freddie reach out and help

Bob Moon May 6, 2008
HTML EMBED:
COPY

TEXT OF STORY

Scott Jagow: In the meantime, government-backed mortgage lenders are doing something that might help. Fannie Mae and Freddie Mac are buying those awful mortgage securities Wall Street won’t touch. This morning, Fannie Mae said it lost $2 million in the first quarter. So, things aren’t going very well. But they might just turn around. Here’s Bob Moon.


Bob Moon: Fannie and Freddie are essentially in the business of recirculating money. They buy up mortgages that they’ll eventually make a profit on, so the lenders will have fresh money to make new home loans. They’re snapping up 80 percent of mortgage securities now, compared to less than 40 percent just two years ago. Wall Street is wary of buying mortgage securities, and at the University of Pennsylvania’s Wharton School, Real Estate Professor Susan Wachter says that leaves the government-chartered companies to fill the void.

Susan Wachter: The competitors are no longer in business. They’ve imploded. So, it’s a case of reaching out, and this reaching out is going to expand mortgage activity, which is what we need.

Wachter sees it as strangely appropriate that their government mandate to encourage lending gives them commercial advantage.

Wachter: They’re doing well by doing good. They’re taking us out of the crisis. Shareholders are going to benefit, but we all benefit.

Only recently, federal regulators were pushing to limit their growth on the grounds Fannie and Freddie were becoming too big of a risk. Now, they’re scrambling to cut them the slack they need to help lead the way out of the housing mess.

I’m Bob Moon for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.