Amazing how quickly Fannie Mae and Freddie Mac have gotten back into the good graces of Congress. The two heavyweight companies insure mortgages. They also buy mortgages and mortgage-backed securities as investments. Less than a year ago they were getting tomatoes thrown at them for being too big and too careless. But now that lots of mortgage lenders are melting down, Congress and the Bush Administration are perceiving Fannie and Freddie as rock-steady sources of financing. (Pictured: Fannie CEO Daniel Mudd.)
The Wall Street Journal has a story this morning saying “the debate in Washington has shifted 180 degrees.” Instead of trying to force Fannie and Freddie to shrink, Congress is looking for ways to expand their role.
I’m still queasy about these two giants. Both have had to pay fines in the past few years for accounting irregularities. On Nov. 9, Fannie finally got caught up by filing reports on the first three quarters of 2007.
And you have to wonder whether Fannie and Freddie, by stepping up their loan-buying in the teeth of a severe housing recession, could end up with crippling loads of bad debt. In its Nov. 9 earnings report, Fannie said it expected national home price declines of 2% in 2007 and 4% in 2008. If prices decline more than that, as many economists expect, then Fannie could find itself a bit overextended.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.