Fannie Mae CEO Exit Reveals Housing Policy Chaos
The resignation of Fannie Mae CEO Michael Williams on Tuesday brings to the surface a fundamental problem: The federal government's housing policy is in chaos. The confusion over how to fix the housing market and what to do with the mortgage giant, is so deep, some industry observers wonder who would even possibly want to step into Williams' shoes.
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Fannie and Freddie, along with the Federal Housing Administration, serve as the primary sources of financing for new mortgage loans. Given the high rate of American unemployment, most lenders aren't providing mortgage loans on any scale. In contrast, Fannie, Freddie and the FHA are continuing to insure loans because the agencies have explicit government backing and thus know that the government will cover any losses created by a borrower who falls behind on a mortgage.
In addition to supporting the creation of new mortgages, the agencies sit at the center of the Obama administration's housing assistance programs, which provide services such as loan modifications and refinances, and therefore play a critical role in assisting delinquent borrowers in keeping their homes.
In February 2011, the Obama administration released plans to wind down the two companies, which in 2008 had come under government control as a result of financial problems. In December, Congress voted instead to use revenues from the two behemoths to fund the payroll tax, in effect insuring the companies' survival at least a little longer.
While the companies' collective future hangs in the balance, so does U.S. housing policy in general. Last week, the Federal Reserve released a white paper emphasizing the importance of the housing sector to an overall economic recovery. Though the Fed usually doesn't comment on the subject of housing, the paper identified possible ways to aid the struggling market and and drew supportive comments from three top Fed officials. In response, Sens. Orin Hatch (R-Utah) and Bob Corker (R-Tenn.) spoke out against the Fed, with Corker, claiming it "absolutely egregious" that the Fed would even suggest such remedies which, in Corker's opinion, would result in a "substantial cost to American taxpayers and responsible borrowers everywhere."
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