Fannie and Freddie to the rescue!

万得福

http://finance.yahoo.com/blogs/d ... scue-155604728.html

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There has long been talk in Washington of winding down Fannie and Freddie and replacing them with a combination of smaller federal agencies and private firms able to do the same thing with less government involvement. But now, under a new plan rolled out by Mel Watt, the federal regulator who oversees Fannie and Freddie, the two agencies could take on an even more important role in housing. Watt wants them to change their standards in a way that would ease the risks for banks that grant mortgages and allow more potential home buyers to qualify for loans. The plan could make Fannie and Freddie more essential than ever, since no other entity save the Federal Reserve has nearly as much power to juice the housing market.
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Watt’s plan is meant to address some of those problems. If Fannie and Freddie ease the standards for mortgages they’re willing to securitize, banks can lend to people with lower credit scores and smaller down payments, with the two housing agencies bearing most of the risk. That happened to an extreme degree in the years leading up to the housing bust, which is why Fannie and Freddie collapsed. But that pushed lending standards to the other extreme, and many bankers today feel lending criteria can be relaxed without risking another meltdown.

Congress is complicit in the resurgence of Fannie and Freddie. Legislators of both parties would like to retire the two institutions — if only because of the stigma they carry — and replace them with a range of options. But like everything else in Congress, efforts to reform the two agencies seem likely to go nowhere amid election-year politicking and the usual partisan gridlock. Watt, meanwhile, does have the power as a regulator to change the agencies’ procedures for the sake of aiding the housing market.

Shares of Fannie and Freddie still trade over-the-counter, since technicalities limited the government’s ownership stake in each company to 79.9% when the takeover occurred in 2008. Hedge-fund manager Bill Ackman of Pershing Square Capital Management has bought more than 10% of the shares in both firms, gambling that Washington will spin them off at some point, returning them to public ownership. Were that to happen, he predicted recently, Fannie and Freddie would become “two of the most profitable businesses in the world.”

But Fannie and Freddie are increasingly valuable as government agencies, too. The two firms have paid back the $187 billion in taxpayer funds they required in the 2008 bailout, and are now sending their profits straight to the Treasury. One reason it’s so difficult for the government to wind down Fannie and Freddie is the fragility of the housing market and the risk of another housing bust if changes push up mortgage rates or otherwise disrupt the market. Plus, politicians with some role overseeing Fannie and Freddie can claim victory if the two agencies help make it easier for ordinary people to buy homes, giving politicians an incentive to stick with the status quo.

Some zombies you just can’t get rid of.

万得福

Step 1, rise minimum wage,
Step 2, loose housing regulation,
Step 3, stop QE tapering
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Boom!

archers

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