Government agencies always stick somebody else with the bill for their errors

Fannie Mae To Banks: Shut Up And Take It

Fannie Mae(FNM) and Freddie Mac(FRE) are pressing banks to buy back huge swaths of home loans as a way for the mortgage finance giants to recoup some of their massive losses that the taxpayer has to cover.
It’s hard to feel sympathy for lenders that slackened or ignored credit standards during the housing boom. But Freddie and Fannie knew what they were getting into when they bought the loans. The quasi-private firms were a major cause of the mortgage crisis, using their (then implicit) government subsidy to expand and leverage up far more than any truly private company could, then using their size to buy or back vast amounts of subprime debt.
Freddie and Fannie, now under government conservatorship, essentially are the market for buying mortgages. So banks have little choice but to knuckle under, Bloomberg reports:
Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.“If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve. “It doesn’t matter how much you hate Fannie and Freddie.”
The Freddie and Fannie push-back of soured loans onto lenders could have a serious impact on banks’ earnings as they try to shore up capital.
More broadly, Freddie and Fannie offer a key lesson: Monopolies are worrisome, but government monopolies are insidious. They have far more power and can always argue that they are helping taxpayers or serving the public interest. (my emphasis)


Comments

Eric - FNMA
03-05-2010 12:52:07
FNMA was a fine organization until Andrew Cuomo, Barney Frank and Chris Doddforced them into making ridiculous subprime loans.