DeMarco reviews failures, successes, and future of Fannie and Freddie

This story appeared in Bank Digest.

Speaking on the five-year anniversary of Fannie Mae and Freddie Mac being placed into conservatorship, Federal Housing Finance Agency Acting Director Edward DeMarco briefly remarked on the conservatorships' successes—such as their functioning as a secondary mortgage market and stabilized financial position, among other things--but he remained realistic about the work ahead. In a speech before Zillow and the Bipartisan Policy Center, DeMarco provided a review of the "failure of the Fannie Mae and Freddie Mac GSE business model, the steps FHFA has taken in the intervening five-years, and ... a look ahead at what to expect in the coming years if we remain without a legislative solution."

DeMarco maintained that while it is true that Fannie Mae and Freddie Mac have begun to report positive net income, the perception that the problems that led to conservatorship have been fixed is incorrect. The "GSE business model remains broken," he said, and the "challenge remains planning for a post-conservatorship world while awaiting legislative action to set forth certain policy parameters for that world." That world entails repositioning key business functions and activities at Fannie Mae and Freddie Mac into the private market, DeMarco indicated.

The next phase of conservatorship, according to DeMarco, is restructuring a new housing finance system that could last for decades. "This effort should not be about considering just what Fannie Mae and Freddie Mac do in the housing finance market, but considering the entire market, including the Federal Housing Administration and other government programs that support housing finance," he said.