FANNIE MAE, FREDDIE MAC AND CORPORATE WELFARE - Risks to taxpayers
We have long been concerned with the ability of mortgage funding giants Fannie Mae and Freddie Mac to act in the public interest:
On December 28, 1995, we suggested, in a Washington Post article titled Fannie Mae to Build Up Charity Unit, that Fannie Mae increased charitable contributions in response to criticism that it had not done enough for the community in the past. We added that the charitable contribution was no substitute for paying local income taxes. Further, while we expressed optimism concerning the ultimate impact of their efforts, we did not think their efforts would continue without public pressure.
On May 6, 1996, we suggested, in a Washington Post article titled This Foundation Director Says Charity Begins at Homes, that the Fannie Mae Foundation be directed to help with specific social issues, like issuing bonds to finance the renovation of D.C. public school buildings. We continue to believe the mission of the Foundation and of the GSE’s should be revised.
On May 30, 1996, we suggested, in a Washington Post article titled CBO Faults Subsidies for 2 Finance Firms, that "their (the GSE’s) primary mission has been completed and completed successfully." We suggested Congress impose a new and different mission, which might involve directing mortgage money to lower-income parts of the District and specifically addressing the problem of housing the homeless in the United States.
Part of our concern with Fannie and Freddie has been the level of complexity. Freddie Mac announced that it had significantly understated past earnings. Fannie Mae announced it had “made an error of more than $1 billion in a quarterly earnings release.” One newspaper reported that "N. Gregory Mankiw, Chairman of the Council of Economic Advisers, told a group of state bank supervisors that the companies are so large and complex that it is hard even for the companies themselves to keep track of their own situations." The risk of a catastropic failure at Freddie or Fannie causing a meltdown of the U.S. mortgage market may be growing.
"The companies borrow money at reduced interest rates. Combined with another group of 'government sponsored enterprises,' the Federal Home Loan Banks, they had debts of $2.2 trillion at the end of 2002, approaching the privately held national debt of $3.2 trillion."
Additional information:
(For more information, see links below. Also see: http://www.washingtonpost.com/wp-dyn/business/specials/freddiemac/)
Additional information:
Risks
to taxpayers
Fannie Mae
(Federal National Mortgage Corp.) & Freddie Mac (Federal Home Loan
Mortgage Corp.)
The Homeownership
Question
Questions
concerning homeownership
Suggested
changes to enhance homeownership
Testimony
before the House Financial Services Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises
For further information
Other questions
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