CUs still can work with troubled Fannie, Freddie

MADISON, Wis. (7/14/08)--Credit unions still should be able to work with Fannie Mae and Freddie Mac, despite the tumble the shares of the two government-sponsored enterprises (GSEs) took last week, says Bill Hampel, chief economist of the Credit Union National Association (CUNA).

"The big declines last week have been in the value that equity investors have in Freddie Mac and Fannie Mae," explained Hampel. "The debt of the two GSEs, which they use to finance mortgage purchases, has not been losing value. If a federal bailout becomes necessary, it would likely protect the creditors of the GSEs but not the equity holders."

Hampel told News Now that "because of the importance of the GSEs to mortgage finance, it is very unlikely that the federal government would create significant changes in their current roles in the short run. This means that credit unions should still be able to deal with Freddie and Fannie as they have been.

"However," Hampel cautioned, "over the longer term, it is likely that support of the housing finance sector by the federal government and its agencies will be more expensive than it has been in the past."

The drop in the shares of Fannie Mae and Freddie Mac again Friday came amid worries that the government will need to take over the mortgage-finance firms (The New York Times July 11).
Freddie stock fell 45% to $4.42 a share, while Fannie's shares dropped 39% to $8.06 a share.

Freddie's stock lost almost 70% of its value during the week, while Fannie's stock dropped 55%.
Federal officials struggled to reassure investors. "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," said Treasury Secretary Henry Paulson on Friday.

"We appreciate Congress' important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO (Office of Federal Housing Enterprise Oversight) will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission," added Paulson.

Paulson's statement suggests that the administration plans to keep Fannie and Freddie as shareholder-owned firms, rather than placing them under government control, said analysts (Bloomberg News July 11). The two GSEs own or guarantee nearly half the nation's $12 trillion in home loans outstanding, including that of many credit unions.

courtesy of cuna.org