The fact that these big investors felt strongly enough to meet with the White House suggests a cold, hard truth: For all the talk about minimizing the federal role, the housing market simply cannot function without that federal guarantee. And only Fannie and Freddie are in a position to supply it.
Here’s another question: Why do you think Fannie and Freddie remain in government control, even though every Treasury secretary since Timothy Geithner has vowed to end the conservatorship? One reason is that, try as they might, government officials simply haven’t been able to devise a way to maintain the 30-year fixed mortgage without Fannie and Freddie. Another is that ever since the financial crisis, Fannie and Freddie have single-handedly (double-handedly?) kept the housing market alive.
It’s true, as its critics say, that the government had to hand the two companies $187 billion to keep them afloat. (This was in part because they were so thinly capitalized.) But once they recovered, they paid back $250 billion, giving the government a healthy return. (It was not such a good deal for Fannie and Freddie’s shareholders; that $250 billion was profit the government claimed for itself.)
What Fannie and Freddie have mostly lost these past 11 years is the power they once had over the other players in the market. If the banks had wanted to play a bigger role during that time, the GSEs couldn’t have stopped them. But they didn’t — because they needed that guarantee.
Any objective observer, I think, would have to concede that Fannie and Freddie have done a very good job since the 2008 crisis. They’ve done so without worrying about shareholders, or market share, or year-over-year profit gains. What got Fannie and Freddie in trouble was not the government mandate, but their public company impulses. In the years before the crisis hit, they abandoned their historically sound underwriting standards because they were losing market share to the mortgage originators that were writing all those subprime loans that came a cropper when the bubble burst. As government wards, Fannie and Freddie no longer have any incentive to act foolishly.
So I ask again: What’s the point? Why does the government continue to try to wind down Fannie and Freddie, or privatize them, or whatever, when they’re working just fine the way they are? If Fannie and Freddie are going to supply a government guarantee on mortgages, they might as well be part of the government. Letting them loose is only going create temptations — and unduly complicate the housing finance system.
They say that if it ain’t broke, don’t fix it. Conservatorship or not, Fannie Mae and Freddie Mac ain’t broke.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."