[ARCHIVE] Make Your Move

Privatize the Loss! Changes May Be Coming to Fannie Mae and Freddie Mac

Aug. 6, 2013

There is a bipartisan Senate proposal to close the doors at Fannie Mae and Freddie Mac, a move that will shift the burden of mortgage failure risk to investors instead of the taxpayers.

Alan Beaulieu Blog

The president is about to jump on board a bipartisan Senate proposal that would shut down mortgage giants Fannie Mae and Freddie Mac over a period of many years. Private investors would buy securitized mortgages, and thus the private sector would be the first to bear the loss if another round of massive mortgage failures should appear.

It is a great idea on the surface, and I am all for it. The taxpayer should not be backstopping the housing industry. Unfortunately the federal government would be the reinsurer of mortgage securities as a backstop to private capital.

The government would institute fees to help fund the purchase of homes by lower-income applicants and ensure the availability of low-income home rentals. These fees and other ongoing government involvement will add costs to the purchase of a home, but that is probably unavoidable at this juncture.

The elimination of Fannie and Freddie should allow the market to have a greater hand in determining mortgage rates, although the Senate plan provides for the government to keep involved in rate setting to some extent. The proposal probably means we can expect higher mortgage rates in the years to come, a rise based to some extent on market forces.

About the Author

Alan Beaulieu Blog | President

One of the country’s most informed economists, Alan Beaulieu is a principal of the ITR Economics where he serves as President. ITR predicts future economic trends with 94.7% accuracy rate and 60 years of correct calls. In his keynotes, Alan delivers clear, comprehensive action plans and tools for capitalizing on business cycle fluctuations and outperforming your competition--whether the economy is moving up, down, or in a recession.

Since 1990, he has been consulting with companies throughout the US, Europe, and Asia on how to forecast, plan, and increase their profits based on business cycle trend analysis. Alan is also the Senior Economic Advisor to NAW, Contributing Editor for INDUSTRYWEEK, and the Chief Economist for HARDI.

Alan is co-author, along with his brother Brian, of the book MAKE YOUR MOVE, and has written numerous articles on economic analysis. He makes up to 150 appearances each year, and his keynotes and seminars have helped thousands of business owners and executives capitalize on emerging trends.

Prior to joining ITR Economics, Alan was a principal in a steel fabrication company and also in a software development company.