My Case for Keeping Fannie and Freddie

Recently President Obama announced he was planning to start winding down loan insurers Fannie Mae and Freddie Mac.   Most of my clients get loans backed by Fannie and Freddie.  Almost all with loan amounts under $625,000 – I personally have three of them.  While I appreciate free market economics, I think Fannie and Freddie are important and were absolutely critical in ensuring access to financing and low rates after the housing bust when no private investors (banks) were lending.   Now private investors will lend, but they will require much higher rates of return to make it worthwhile and the only products that will offer low rates will be adjustable rate products and shorter terms, which shifts the risk to the borrower rather than the bank.

While he has done many good things while in office and his heart is in the right place, I think President Obama understands very little about the housing market.  Removing Fannie and Freddie would be more regressive than progressive since it would mainly create higher rates for lower and middle class borrowers (high purchase prices usually require jumbo loans anyway) and the shorter term loans and higher rates would create more foreclosures and fewer purchases/lower prices, stalling the housing market.   It also leads to a potential situation where there is no access to financing if there is ever another crash.  While I agree with the idea in principal, I think it would be bad for housing and the economy.