Fannie and Freddie’s Strong Earnings Mask Struggling Housing Market

Over the past year, Fannie Mae and Freddie Mac have been giant refinancing machines generating huge profits that have been flowing into the U.S. Treasury.

These profits have allowed Freddie to finally reach a point where it can pay back all the assistance it has received from the federal government since it was placed in conservatorship in September 2008. Fannie is only one quarter away from reaching the same milestone.
But this emphasis on refinancing has left the housing market in a “rut,” according to Jim Carr, a former Fannie executive and currently a senior fellow at the Center for American Progress.
It is only “marginally performing” in terms of serving homebuyers, Carr told NMN. He blames this on high fees and tight credit standards.
“It is time to change leadership at the Federal Housing Finance Agency and appoint a person who can focus on homeownership and provide credit to first-time homeowners,” he said. Edward DeMarco is the acting director of the FHFA.
Mortgage Bankers Association president and chief executive David Stevens also is concerned about the lack of emphasis on the purchase market and the fact that DeMarco is still talking about raising loan fees and lowering loan limits.
“The direction of this GSE market is not supportive of creating a robust housing market recovery,” Stevens said in an interview.
The strong earnings reports released by Fannie and Freddie on Thursday show the conservatorship phase for the GSEs is over, Carr said. “It is no longer needed to protect taxpayers,” he said. Until Congress passes GSE legislation, the FHFA could take administrative actions to improve access to credit.
The MBA chief executive noted that Fannie and Freddie's turnaround is really based on a no-doc refinance program called HARP, the Federal Reserve's low interest rate policies and government guarantees.
Meanwhile, the GSEs are producing massive profits for the Treasury Department while the housing market is struggling. “The real work of addressing the purchase market recovery has been lost in all of this,” Stevens says.