More than a decade after the $188bn government bail-out, a plan to re-privatise the two companies has been announced
unfinished business of the financial crisis”: that is the rallying cry of those seeking to reform Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises that back much of America’s mortgage industry. In 2008, amid the wreckage of the housing market, they were bailed out by the federal government to the tune of $188bn and placed in “conservatorship”, a form of government control.
Their guarantees transfer some credit risk from the private sector to the government. In the run-up to the financial crisis, that transfer started to balloon. In the 1970s Fannie and Freddie held less than 10% of single-family mortgages in America. Now they hold more than $5trn of housing-related securities and guarantees, nearly half the total .
With exit politically untenable, the priority is cutting the pair down to size. Before the bail-out they operated as private companies with a public charter, implying that the government would bail them out if they ran into trouble. Rather than nationalising them during the crisis, the Treasury guaranteed to keep their net worth above zero. In return it took warrants representing 80% of their common stock.
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