Privatizing the GSE’s… is it worth the risk?
Most of us, at this point, have moved on from the Great Recession of 2007-2012. Our market is in a completely different state. Technological developments are creating new markets left and right and we’ve enjoyed the most prosperous growth the stock market has ever seen. While things may be different, we can’t forget the period where world markets saw some of the worst economic decline since the Great Depression. During this period, many countries and markets suffered, but what amazes me the most is where it all started…
Fannie Mae and Freddie Mac (along with the Federal Housing Administration) account for 90% of all mortgage originations. They are the most important players in a market that accounts for almost 25% of the entire US GDP. The changes our government make with these two should be at the spotlight of our attention and since the Great Recession, our primary concern was privatizing the two super giants. Fannie and Freddie are still very much GSE’s (government sponsored entities) but recent comments by U.S. Treasury secretary nominee Steve Mnuchin have brought the spotlight back to privatization.
There are crazy complex factors that go into finding the right model for this to happen. Tax payers, hedge funds and almost every aspect of the financial world will be affected in one way or another. But before we go down this long road, I can’t help but ask myself if this is a journey worth taking. Our government was heavily involved in the two GSE’s when they created all the sub-prime mortgage products behind their backs. Wouldn’t privatization give them even more freedom? I know I’m looking at this in a negative light, almost every other world market has a private mortgage industry. These two companies exemplified some of the worst corporate greed our country has ever seen and to be frank, did not see that much backlash. We incorporated much more strict guidelines in underwriting but is that going to stop someone from wanting to abuse a loophole again?
In the end only, time will tell.
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.