More Moral-Hazard Rewards? Feds look to unload Fannie, Freddie loans

What do you think of this? “The FHFA declined to comment.”

The government wants to explore shifting responsibility to so-called “special servicers,” which focus on troubled loans, she said. Doing so “could give such servicers more flexibility to determine modifications or find faster resolutions for troubled borrowers,” Mrs. Miller said.

Feds look to unload Fannie, Freddie loans – MarketWatch.

Is this really geared toward good workouts {working out what’s reasonable and fair for distressed homeowners during these economic hard times brought on not by most ordinary homeowners but some (not all) corporations, huge and small, that gamed the system — took advantage of the moral hazards they worked overtime to create}?

What’s the cost/benefit for the people, the government those people fund via their hard work and taxes?

If specialization is required and private contractors can be properly managed by the government, then it would appear to be a good idea if it would be less expensive than hiring or training existing governmental workers so the government could do it as well or better than the contractors.

It must also be remembered that the entities involved, Fannie and Freddie, are GSE’s (Government-Sponsored Enterprises and not full-fledged government agencies).

We should think that the main issues are proper oversight, fair guidelines, and total cost to the taxpayers. Which way would be better? Which causes less moral hazard going into the future?


The Federal Housing Finance Agency (FHFA) is an independent federal agency created as the successor regulatory agency resulting from the statutory merger of the Federal Housing Finance Board (FHFB), the Office of Federal Housing Enterprise Oversight (OFHEO), and the U.S. Department of Housing and Urban Development government-sponsored enterprise mission team,[1] absorbing the powers and regulatory authority of both entities, with expanded legal and regulatory authority, including the ability to place government sponsored enterprises (GSEs) into receivership or conservatorship.[2][3][4]

In its role as regulator, it regulates Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks (FHLBanks, or FHLBank System). using_Finance_Agency

The Federal National Mortgage Association (FNMA; OTCQB: FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968.[2] The corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts.[4] For a comprehensive list of articles discussing Fannie Mae, see Fannie Mae and Freddie Mac: A Bibliography.

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE), headquartered in the Tyson’s Corner CDP in unincorporated Fairfax County, Virginia.[2][3]

The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases. The name, “Freddie Mac”, is an acronym of the company’s full name that had been adopted officially for ease of identification (see “GSEs” below for other examples).

On September 7, 2008, Federal Housing Finance Agency (FHFA) director James B. Lockhart III announced he had put Fannie Mae and Freddie Mac under the conservatorship of the FHFA (see Federal takeover of Fannie Mae and Freddie Mac). The action has been described as “one of the most sweeping government interventions in private financial markets in decades”.[4][5][6]

Moody’s gave Freddie Mac’s preferred stock an investment grade rating of A1 until August 22, 2008, when Warren Buffett said publicly that both Freddie Mac and Fannie Mae had tried to attract him and others. Moody’s changed the credit rating on that day to Baa3, the lowest investment grade credit rating. Freddie’s senior debt credit rating remains Aaa/AAA from each of the major ratings agencies Moody’s, S&P, and Fitch.[7]

As of the start of the conservatorship, the United States Department of the Treasury had contracted to acquire US$1 billion in Freddie Mac senior preferred stock, paying at a rate of 10% per year, and the total investment may subsequently rise to as much as US$100 billion.[8]

Home loan interest rates may go down as a result and owners of Freddie Mac debt and the Asian central banks who had increased their holdings in these bonds may be protected. Shares of Freddie Mac stock, however, plummeted to about one U.S. dollar on September 8, 2008, and dropped a further 50% on June 16, 2010, when the Federal Housing Finance Agency ordered the stocks delisted.[9] In 2008, the yield on U.S Treasury securities rose in anticipation of increased U.S. federal debt.[10]

For a comprehensive list of articles discussing Freddie Mac, see Fannie Mae and Freddie Mac: A Bibliography. c