“Freddie and Fannie Delisted! What Does it Mean for Real Estate?
You might have missed this little item in the nightly news report; government home mortgage giants Freddie Mac and Fannie Mae are delisting from the New York Stock Exchange. Despite $145 billion in taxpayer funds spent to shore up the pair, shares have dropped so significantly they no longer qualify for inclusion on the exchange but will continue to be traded via the infamous bulletin board instead. In order to participate in the traditional exchange, shares must trade above $1…Fannie has been below that level for well over a month making delisting a legal necessity. Freddie has continued to struggle at just over the $1 level but will also be delisted given the eventual prospects. Given the difficulty of becoming profitable…much less an actual attempt to repay the government aid, it’s unlikely any serious effort to revive the failing entities will be forthcoming.
Since January of 2010, Freddie and Fannie (with some help from the Veterans Administration) have underwritten nearly all new home mortgages for the year; throw in the assumption of non-performing assets and bail-outs and the combined total for the defunct duo now accounts for nearly half of all the mortgages in the entire nation. With bank lending standards showing little sign of relief, experts are wondering what the delisting of Fannie and Freddie may mean for the future of a struggling real estate industry.
Aside from the loss of shareholder value…which is expected to be significant as neither entity has retained any level of significant value…the immediate impact is expected to be minimal. “Business as usual” is the anticipated motto for the time being. However, experts predict the long term consequences could dramatically alter the landscape of mortgage lending for years to come. There is significant support for privatizing the role of Freddie and Fannie while liquidating assets to recoup some of the anticipated $1 Trillion in losses currently shouldered by the tax payers.
But what would that really entail? According to AEI think tank guru Peter Wallison, a combination of liquidation followed by privatization is the preferred method of reform and would allow both to compete in the marketplace for securitization and the goal of providing affordable housing. Bernake is also an advocate of the privatization plan but suggests the prior operational model was unsustainable prior to the collapse but suggest the new footing would establish a firm foundation going forward. Critics argue this is a rehashing of the same trends that put us here in the first place and seek nationalization instead. Time will tell but as of this writing, it appears there is strong support for a push toward privatizing.” Chris McLaughlin
What does this really mean for Freddie Mac and Fannie Mae? If the world’s of think tank’s and Chairmen of U.S. Federal Reserve care to see it through the real estate agent’s perspective, here’s our thoughts:
Does it not seem the stage is setting for the government to be getting involved? Has the government not already been involved? After all the past and current turmoil, does it seem fit that the government is going to let their hard work slip through their fingers and let the two giants do anything other than profit; for the well being of the country?
Could it be that the Deptartment of Housing and Urban Development needs some extra workload to keep them busy. HUD is handling their share of this mess, why not allow this public entity to encapsulate these two bohemeths of the private sector, and give the government a go at finally setting the record straight once and for all.
I don’t have any technical data to back this up, but think about it, is the government not going to step in at some capacity to make sure the Fannie’s and Freddie’s don’t continue this colossal slide in the housing market. Will the government allow their bandaid on this mistake to completely fall off?
Let HUD oversee Fannie and Freddie, and allow everything to run through HUD. As with Banking, Auto Industries, and Housing, why not let this administration get the market share here as well. With the slide of the economy, it seems more regulation and scrutinization has been the answer, so does it seem logical to clean up the Fannie and Freddie mess with more government intervention?
We’d love to hear your thoughts, and apologize for the political undertones NOT taken up in this post…