A new Competitive Enterprise Institute report warns of looming problems with Fannie Mae and Freddie Mac, the two behemoth home mortgage backers underwritten by the federal government and taxpayers.
“Taxpayers are unfairly on the hook for another looming mortgage bailout like the disaster that happened in 2008.To prevent that from happening, Congress and the President must get government and taxpayers out of the mortgage business and let private lenders and homebuyers decide how best to invest their own dollars,” said John Berlau, CEI senior fellow and author of the report.
Government data show that government-sponsored mortgage backers Fannie Mae and Freddie Mac may need up to $100 billion in new bailout money if there are changes in interest rates or economic volatility. That mirrors the 2008 financial crisis that started with a mortgage bust.
The report also delves into another big problem with how the government manages Fannie and Freddie. Though both institutions paid back government bailout money after 2008, the Obama administration imposed a permanent and unfair policy of the federal government seizing all profits from Fannie and Freddie, hurting both taxpayers and private shareholders in the companies.
“The Trump administration must put an end to the Obama administration’s reckless policy of seizing all the profits from Fannie and Freddie, which leaves the nation’s two biggest mortgage backers with inadequate reserves to protect against economic downturns,” Berlau explained.
Many average Americans own stock in Fannie and Freddie through pension funds and individual brokerage accounts. The current profit-seizing policy is not only harmful to these investors, but also sets a dangerous precedent that seizing private property for public use can be done without any compensation to American property owners, the report explains.
The report recommends that Congress take steps to return the housing market to private lenders and borrowers and set up a commission to make sure Fannie and Freddie shareholders are compensated.