The Future of Fannie & Freddie

The Economist pointed out in the latest issue that the Financial Overhaul Bill failed to address the future of Fannie Mae and Freddie Mac.  If you’ll recall the government places the two mortgage giants under conservatorship back in 2008.  Since then US taxpayers have pumped $145 billion into the companies to cover losses in their loan portfolio’s.  Fannie and Freddie play a critical role in the US mortgage market and I wouldn’t expect anything to change until the housing market begins to shows signs of recovery.  That said, the aforementioned article lists some interesting statistics which are very telling about the boom-times of 2006-2007.

• “In the first quarter they and Ginnie Mae (FHA)… guaranteed 96.5% of all newly originated mortgages…”
• “Most of the losses of Fannie and Freddie result from mortgages originated before 2008. Mortgages originated in 2006 and 2007 account for 24% of Fannie’s business but 67% of its credit losses.”
• “Between 2007 and 2009 the proportion of their loans with a loan-to-value ratio of 70% or less rose from 31% to 49%, while the share with a loan-to-value ratio above 95% fell from 10% to 1%…”
• “At Freddie Mac 3.9% of mortgages originated in 2008 were at least 90 days delinquent at the end of March 2010. For mortgages originated in 2009, the equivalent figure was barely 0.1%…”
• “…that most other countries get by with far less government backing of mortgage finance, yet their home-ownership rates are not appreciably lower and none suffered as bad a housing crash…”