10 Years After: Where are the GSEs 10 Years After the Financial Crisis?

By Anthony B. Sanders

Meghan Milloy at American Action Forum has an interesting piece today entitled “Where are the GSEs 10 Years After the Financial Crisis?”

It reminds me of Ten Years After’s “I’m Going Home.” But in the case of mortgage giants, Fannie Mae and Freddie, the song should be titled “They’re Going Nowhere.”

“Unfortunately, 10 years later, the GSEs are still in conservatorship, Congress has passed no major legislation to overhaul the GSEs or the housing-finance system as a whole, and Fannie and Freddie are returning to some of the dangerous activity that led to the last crisis. Even five years ago The Wall Street Journal said that fixing the GSEs was the “largest single piece of unfinished business from the financial crisis.””

True, Fannie Mae and Freddie Mac stock crashed starting in Q4 2007 culminating in both being placed into conservatorship with their regulator, FHFA. Where they remain today.

fffhfa

Then there was the notorious “profit sweep” where Treasury in 2012 (despite Treasury Secretary Geithner knowing in 2011 that Fannie and Freddie would soon be profitable again). So now all Fannie Mae and Freddie Mac profits go directly in Treasury coffers. THAT is the current equilibrium.

Particularly worriesome since Fannie and Freddie can’t accumulate capital to serve as a buffer.

So, we’re now “On the road again” to see what will happen next to Fannie and Freddie. Particularly since FHFA Director Mel Watt’s term ends in December.

Is this FHFA Director Mel Watt singing “Ookie, ookie, ooh!”?

melwatt

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Gary

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