The markets responded well on Monday following Sunday’s announcement of Treasury’s takeover of mortgage investors Fannie Mae and Freddie Mac, signaling some optimism about the long-troubled agencies. But then Tuesday the Dow quickly lost most of those gains amid resurgent worries about the health of the financial sector and the global economy.
So the takeover, at least in its first two days of existence, does not appear to have the restorative power that Treasury Secretary Henry Paulson and others thought it would.
To be fair, the move is still fresh, and the long-term health of the housing market is still in question, even as interest rates dropped Monday. There are, however, legitimate questions about Treasury’s move, particularly after the administration said in July that simply expanding the government’s line of credit to these quasi-private entities would do the trick.
Barry Zigas, who headed up Fannie Mae’s community lending operations through 2006, writes in an excellent, point-by-point analysis that one of the pros of the takeover is a stabilization effect that will allow breathing room for the next administration to examine the role that GSEs will play in mortgage markets in the future. But Zigas notes that there “needs to be more clarity” in how large a role the government plays in “serving the mortgage needs of low, moderate and middle income homebuyers.”
Ellen Seidman of the New America Foundation and a contributor to the upcoming fall issue of Shelterforce where she offers insight on the subject of “asset building” for the next administration, says we need to reflect on the successes of Fannie and Freddie and reminds us to remember their housing missions, but that “the combination of Wall Street pressures for continually increasing quarterly earnings, an undiversified business, government backing enabling virtually unlimited growth and relatively light mission direction makes for a very tricky business model.”
So, as all of us are watching, reading about, and absorbing the ramifications of Treasury’s move, What do you think? As we are left trying to figure out what this means for communities, low-income individuals and families in danger of losing their homes, financing of affordable housing, and the housing market as a whole, how will this help or hurt?