Will Fannie Mae Ever Be a Non-Government Entity?

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Feb. 28 (Bloomberg) –- Graham Fisher Managing Director Josh Rosner and Pimco Executive Vice President Tony Crescenzi discuss the future of Fannie Mae and Freddie Mac with Trish Regan and Julie Hyman on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Bill ackman and bruce berkowitz thinking here that at some point the money will get return to shareholders and they're going to get out from under the government's thumb.

At some point we have to recognize that the companies have functionally paid the government back.

The sweep of the income into the government coffers does not really make sense.

Except, so long as the government is on the hook for having to bail them out.

On the hook for bailing out a large number of institutions.

All of them had the opportunity to pay back.

We have said fannie and freddie cannot pay back.

At the end of the day where watching these crazy machinations in washington, focused on restructuring the mortgage finance system and talking about dismantling the cornerstone.

That would be having a fannie and freddie that were not actually government-sponsored entities.

There would be no government involved at all, which would mean if you default on that mortgage, if you are the bank holding it, no one is there to guarantee.


I would go further.

We are watching the legislative process, with these wonderful machinations that are attempts to suggest we can create a fully private market.

Why can't we?

Europe did.

At the end of the day we want a 30-year fixed mortgage.

Do wek?

We have a $12 trillion mutual fund.

Supporting and $8 trillion market.

The government will be on a catastrophic pace on the hook.

The goal is to structure the market to minimize that risk.

The bets these hedge fund guys are making -- ackman and berkowitz are on opposite sides of the trade because ackman owes the common stock and berkowitz owns the preferred stock.

I getting too much -- i think it getting too much -- can we have a housing market that is healthy and sustainable without government intervention?

Part of the market supported by the private except her, there is no subprime mortgage.

It's difficult to get any mortgage beyond the amount that fannie or freddie backs up.

That's the problem.

We are saying we have the government propping up our housing industry.

Or you need a system -- i wrote a book that was specifically about fannie and freddie.

I have been one of the biggest gse credits.

The problem with fannie and freddie were not their function, it was the fact that they were undercapitalized, the credit box was not commensurate with the risk they were taking.

Telling them you've got to lend.


If we fix those aspects we could have a different conversation.

The problem is the terms.

We keep referring to the gse's. all of our utilities are ultimately government-sponsored enterprises, where the catastrophic risk is backed by the government.

It's different.

You have people putting their entire life savings into a home and making a bet.

Housing is still a bet.

I think it would be a good thing to get the government out of this equation because then you would have a more natural -- to josh's point, there is realistically what can happen.

We had more of a private market before the creation of fannie mae where most people could only get five your mortgage is that had a balloon at the end.

When it came time to refi, they had to pay off the whole thing or find another lender, which in the time of reduced liquidity became impossible.

We created a secondary mortgage market which functioned very well from 1939 until this crisis, with a few exceptions.

The problem was capital and credit risk pricing.

Is not just that.

It's a syndication market.

The fees that fannie is charging and the gse's in general, how do you feel about it now?

They have tightened their lending standards.

Probably too much.

They are properly pricing, but if you want more private market, it continues to rise.

Capital, we should be fixing it.

We should be creating real capital standards and risk pricing standards and paying the gse's with no portfolio would be very different gse's. if you don't have gse's, what happens to the syndication market?

It goes away.

What's wrong with that?

We see there is no market outside of government supported.

We had the private-label market which ultimately went off the rails because there were no standards, and the gse's failure became they were competing by sliding into the primary market.

If you limit them, you would have them is what they were intended to be, countercyclical utilities to make sure that when liquidity evaporated from the mortgage market, banks could sell mortgages to an insurer.

Instead we have washington trying to dismantle something and replace it with something that is essentially the same thing.

Could you dismantle it all together and not replace it with anything?

You would see a severe crash in housing prices and a complete lack of access.

The only counter to that is we have gotten ourselves so far into this.

Maybe there is no turning back at this point because it would be a housing crash.

However, you look at markets like canada where they don't have systems like this and they have had more stability in housing.

They also have a lot more down payment requirements.

You cannot just walk out.

Nobody in washington wants higher down payments.

If you want a system or people are building up equity through their lives so they can fund their own retirement, you need to consider the fact that gse's served this well until they were poorly overseen.

Thank you so much, josh rosner.

This text has been automatically generated. It may not be 100% accurate.


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