Fannie and Freddie: GSE reformers keep their options open
Range of options mooted; Wind-down on the cards
To be called "the biggest disasters of all time" really takes some doing. But when JPMorgan chief executive Jamie Dimon thus described US government-sponsored mortgage companies Fannie Mae and Freddie Mac in his testimony to the Financial Crisis Inquiry Commission last October he was not accused of exaggeration.
|total Federal funding for Fannie and Freddie to date
The firms have soaked up more than $150 billion in federal aid so far and have been deserted by their senior management. Freddie Mac is under investigation by the SEC (for a second time) over its disclosures to investors, the firm’s chief financial officer committed suicide in 2009 and its chief operating officer resigned last month. "[The GSE crisis] was an accident waiting to happen," Dimon said last October. "We all knew about it, we all worried about it, no one did anything about it."
"Doing something" about Fannie and Freddie is now a priority, and the Obama administration finally came out with its delayed recommendations for GSE and housing finance on February 11.
Projecting that they could need further federal assistance to the tune of another $73 billion until 2021, the Administration – perhaps not surprisingly – explicitly advocates that both Fannie Mae and Freddie Mac be wound down.