A Lot of Noise About Mortgage Reform, But Little Changing

The housing and mortgage crisis that began in earnest in 2007 resulted in massive foreclosures and the failure and conservatorship of the mortgage giants Fannie Mae and Freddie Mac. Taxpayers have bailed them out, and it appears there may be more funds necessary to keep them solvent while policy-makers discuss how to deal with the situation.

Plans have been announced to phase out both of these agencies within anywhere from five to ten years. Along with those plans are discussions of how the private mortgage industry should move in to fill the gaps left on their departure. With $137 billion from taxpayers invested so far, dropping more into the pot isn’t considered the best way to go. However, recent estimates are that by 2015 taxpayers will have around $200 billion in the two companies.

Washington has been talking a lot but is dragging its feet in winding down Fannie and Freddie. The problem is that the struggling housing market is just beginning to show signs of healing, and there really aren’t any initiatives in place that promise a substantial influx of private lending. Allowing mortgage sources to dry up even more could have a very damaging effect on the housing market in its current state.

Critics of the lack of progress in winding down the two giants say that it’s more about money than anything else. Increases in mortgage guarantee fees since 2011 all go to the Treasury, not to repay taxpayers. The companies are in effect a government piggy bank. Current and former Fannie and Freddie executives also want them to stay around, with 1786 former executives receiving $25.3 million in retirement benefits last year alone. Adding in medical benefits and other benefits for current executives and you can see the forces pushing for slowing down any action that threatens these benefits.