Fannie Mae and Freddie Mac are often just misunderstood

Fannie and Freddie – misunderstood?

“The mortgage giants Fannie Mae and Freddie Mac are not blameless in the foreclosure crisis, but the case against them is also often misunderstood and exaggerated,” opines Kevin Park, a doctoral student at the University of North Carolina at Chapel Hill in a piece about the history and evolution of the two government sponsored entities (GSEs) in modern times.

Three years ago, Fannie and Freddie were placed into conservatorship under the Federal Housing Finance Agency and Park notes that together, the two institutions hold roughly $5.3 trillion in home mortgages.Various efforts have been made to wind down or abolish Fannie Mae and Freddie Mac with those efforts accelerating as the two steal headlines over the FHFA approved nearly $13 million in bonuses to Fannie and Freddie execs just days before quarterly reports were released, revealing that Freddie Mac who lost $4.4 billion in the third quarter requested an additional $6 billion, while Fannie Mae lost $5.1 billion and requested an additional $7.8 billion.

Questionable cause of Fannie & Freddie’s failure

Park argues, however, that Fannie and Freddie aren’t exactly the bad guys in the housing market. It looks like they’re going to be the scapegoat though, according to Park’s take on the GSEs.  ”The causes behind their failure have been and will continue to be much debated. Below is a discussion of facts related to Fannie and Freddie’s role in the current housing crisis. The accumulation of evidence suggests that profit, not policy, pushed these players like many others into treacherous territory and risky products not borrowers led to their collapse.”

Park’s full argument is below and features insightful charts and easy to understand language: