One of the biggest issues in the real estate industry over the past year has been the speculation that government-sponsored mortgage programs Fannie Mae and Freddie Mac will be ending. For the past 70 years, Fannie Mae and Freddie Mac have helped countless Americans secure long-term, fixed-rate mortgages, by purchasing them from lenders and securitizing them, all with the unofficial guarantee of the federal government backing them up.
Both saw their own corporate finances collapse two years ago, amid the housing and credit crisis, and that led to the Obama administration calling for their end. During the 2008 financial crisis they collapsed into government conservatorship as a massive number of loans in its vast $5.6 trillion portfolio started to fail.
“We need to wind down Fannie-Freddie and substantially reduce the government’s footprint in the housing market,” Treasury Secretary Timothy Geithner announced in February of last year. “And that’s a process that has to happen gradually, because they are now the dominant source of housing finance, and we want to be careful that that process happen in a way that doesn't interfere with, or impede, the process of repair in the housing market.”
The Treasury’s plan is committed to doing this over a term of five to seven years, putting in place new regulations, which will allow the private sector to replace the government involvement in the housing market.
“Fannie and Freddie became scapegoats for the housing market meltdown,” says Lisa A. Magill, an attorney with Becker & Poliakoff PA, a community association law firm with offices in several states. “As a practical matter, FHA has taken the lead in origination of home loans, whether purchase, refinance or home improvement.”