Catch 22 Fannie and Freddie: If These GSEs Do Not Guaranty the Loan, Then Who Does?

And if the US Government Does Not–Then Interest Rates Rise Significantly Regardless

Nine in ten loans today are guaranteed by either Fannie Mae, Freddie Mac or governmental agencies according to this Wall Street Journal article.   Without some form of guaranty from the US government, interest rates rise significantly.  While the article notes that the Obama administration is considering making these guarantees come from the lending industry (so that the government does not increase the deficit even more), to do so would significantly increase the cost (read that as the interest rates) of loans.  And an increase in interest rates would be another significant blow to an already stumbling real estate market.  (And remember, since 1949 in every recession the recovery from that recession has been led by a recovery in the housing market.)

While we all want to grizzle about Fannie and Freddie, the bottom line is that without them interest rates rise significantly, home ownership declines precipitously and the economic recovery becomes further delayed.  So rather than eliminate Fannie and Freddie, let’s convert them from GSEs (Government Sponsored Enterprises that became for-profit ventures) to GSAs (Government Service Agencies which would be not-for-profit ventures and would have high quality underwriting associated with these respective guarantees). 

And that’s my two cents.

New Fees Weighed for Mortgage Industry– WSJ online

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