Fannie and Freddie Draining Government Resources

By Kyle Chezum Updated on 6/14/2011

 

Government conservatorship of Fannie Mae and Freddie Mac has been a highly beneficial thing, a step that arguably saved the housing industry from a much more cataclysmic downward spiral, but now, several years into the crisis, the two mortgage giants are putting a severe strain on government resources and limiting what resources can be applied to other government programs and projects.  The Federal Housing Finance Agency, tasked with limiting costs and losses incurred by the two firms, recently released a letter to Congress that gave an update on the health of the mortgage giants.

"Since being placed under conservatorship in 2008, Fannie Mae and Freddie Mac remain critical supervisory concerns," said Edward DeMarco.  DeMarco, as acting director of the FHFA, holds primary responsibility for minimizing losses incurred by Fannie and Freddie.  But this has not been easy and will continue to be a difficult task into the future.

Better underwriting standards helped decrease Fannie and Freddie's losses to just $28 billion last year, a significant drop from the $93.6 billion lost the year before.  The two firms have had to rely on Treasury support to the tune of $160 billion in funding.  Though things are looking up, the two firms are stilled hindered by "credit risk, operational risk, modeling risks and retention of qualified leadership and personnel," DeMarco stated.

"Although past business decisions leading to these losses cannot be undone, each enterprise, under the oversight and guidance of FHFA as conservator and regulator, has improved underwriting standards for loan purchases in the past two years.," he said.  But there is still a rocky road ahead, and DeMarco believes more government resources may be required to keep Fannie and Freddie alive and well.