jboswell

Calculated Risk: Why Merging Fannie/Freddie is 'Dumb'

Back in 2000 the PMI Insurance Companies because of the fear of what Fannie and Freddie might do with their newly developed Underwriting systems proposed to Congress that they let Ginnie Mae (a completely government, non-gse corporation) compete against Fannie and Freddie. Ginnie Mae with its unbloated staff of approximately 70 government employees was managing a portfolio of $600 billion of mortgage-backed securities that had the Full Faith and Guaranty behind them, but was constrained to the non-conventional, federally-insured housing market. As a former "risk manager" for Ginnie Mae, I was tasked to consider the risk issues involved with such a plan. My conclusion after looking into the consideration was this: Ginnie Mae could have blown Fannie and Freddie out of the water with only minor changes to their organization. Any one, as far back as 2000, could see what the oligopoly power of Fannie and Freddie was doing to our economy. Fannie and Freddie were bloated beyond all necessity. In fact, the GSEs were reorganizing about every six months just to keep up with their changing money-grabbing strategies. Well, what happened to the PMI Insurance Companies proposal? It was being worked on when 9/11 happened, but shortly after that it was scuttled because all government focus turned to Homeland Security issues. Guess now, which entity no one talks about having any problems: Ginnie Mae, the truly one organization that did securitize loans for low and moderate income homeowners. Should Fannie and Freddie be merged. Hell yes they should be merged and when they are, they should cut the staffing of both organizations by 90 percent. If everyone is so scared of real Government intervention into Fannie and Freddie, then I think it might be worth while looking at the model of the GSEs weaker sister, Ginnie, and see how she has performed during and throughout this current crisis. ps. I believe in private enterprise over government, but the concept of a government sponsored enterprise should be forever dropped from anyone's consideration ever again.