Is Two Really Better Than One? Fannie and Freddie Work Together to Find Out

United Realty Discusses Fannie Mae and Freddie MacIt’s barely spring, but the housing market news is starting to warm up. The recent announcement by Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), that Fannie Mae and Freddie Mac will consolidate functions by starting a securitization firm, has the industry buzzing. This new firm would presumably cast a red hot beam on home loans as they are processed today, easing some of the government involvement in the process. It’s reconstruction on a grander, reasonable scale, and it might just work. Speaking to the National Association for Business Economics, DeMarco outlined a scenario that would be built on cooperation, sure, but more importantly, an aggressive consolidation whereby the company would have its own chief executive and board, jointly owned by Fannie and Freddie.

As the natural step, a sort of quantum leap from the pessimism of 2008, when the Federal Government bailed out numerous companies including Fannie and Freddie, the ground seems almost poised to produce a future harvest, or at best, the beginnings of a more stable and robust market. What are the broader implications? Less government should result in less strain on the U.S. Treasury (both companies have drawn nearly $190 billion to stay in business), at least in theory. Additionally, the goal is to shrink Fannie Mae and Freddie Mac down by 10 percent in the loan market for multifamily homes. According to Reuters, Fannie Mae and Freddie Mac collectively finance about two thirds of the loans in the U.S. Reuters also reported that Fannie and Freddie will aim to complete $30 billion in single-family credit guarantee business in 2013, in effect, sharing some of the risk with the private market. Transactions could include mortgage insurance or other types of debt securities. The Chicago Tribune reports that by next year, both companies will be required to reduce the less liquid portion of their portfolio of mortgages by 5 percent.

The offspring of Fannie Mae and Freddie Mac may share some of the junk DNA inherent in today’s mortgage loan guidelines, but tougher regulations and a new outlook could be enough to make this firm a successful up-start (if you could call it that). The housing turnaround – a rebound, if you’re closing watching the numbers – is poised for yet another collection of positive headlines, as the general climate moves from pessimistic to cautiously optimistic. It won’t happen today, and it certainly won’t happen tomorrow, yet the cogs of the machinery are getting pushed into motion. Springing forward, just took on a whole new meaning, especially if you’re on the right side of commercial real estate.

Posted on by Jacob Frydman in Commercial Real Estate, Housing Market Leave a comment

About the author

Jacob Frydman

Jacob Frydman is the CEO of United Realty. For most of his 30-year career, Jacob has focused on value-added investments using his strengths in structuring, financing and executing highly complex real estate transactions. As an investor and lawyer assisting clients, he has conceived and executed numerous creative solutions for distressed or under- utilized properties. Jacob has developed a wide variety of properties from Florida to New York, including large urban office buildings, golf course communities, planned unit developments, urban retail projects, suburban office buildings, medical office buildings, financial center office projects, and assisted living facilities. He has acquired more than 5 million square feet of existing and to be developed real estate primarily in eastern United States, and has participated in acquisition and development transactions valued at over $1 billion.

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