Mortgage Industry Trends

Mortgage Financing: Is the Government Infringing on the Private Sector

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gse-bailout-fannie-mae-freddie-macWith the crash of 2008, the federal government took over the largest purchasers of conventional mortgage loans in this country; Fannie Mae and Freddie Mac. They said this was done to protect the taxpayers against major losses that might be sustained by these agencies. (Takeover)

In September of 2008, the agencies were placed into conservatorship and provided with about $190 billion dollars as a “bailout” in taxpayer money. In return, private stock was transferred to the Treasury in the form of senior preferred stock under which Fannie and Freddie paid to the Treasury a monthly dividend of 10% interest on the amount of the bailout. You do the math. Not a bad deal for the Treasury.

That wasn’t enough. Once the Agencies began making money again (2012) the Treasury changed the terms and replaced the preferred stock they held with a requirement instead that all Agency profits be paid into the Treasury. Fannie & Freddie posted an $8 billion profit in that quarter. Now you know why Fannie and Freddie may never emerge from conservatorship. They make too much money for the government.

In a country now carrying a $20 Billion deficit, with business and its people already carrying a heavy tax burden, where else can the government generate such revenues?

There is presently a court battle going on over the legality of the government’s takeover of the Agencies and their income. The government is fighting hard to maintain control. Why not, seems they may have a cash cow by the tail. Through Fannie, Freddie, Ginnie and FHA insured loans they are presently the biggest player in home financing markets. Using these outlets where might they go from here?

What do you think?

  • Is it good for the Treasury to control the Agencies?
  • Should the GSE’s return to their prior structure and purpose?
  • Is it good that the housing market is dependent on federal government involvement?
  • Under government control might Fannie and Freddie replace conventional lenders?

Just some things to ponder…

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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