Bethany McLean, author of the newly released Shaky Ground: The Strange Saga of the U.S. Mortgage Giants, dug into the complicated history of Fannie Mae and Freddie Mac, their role in the housing crisis and their seemingly uncertain future.
Bethany McClean, contributing editor for Vanity Fair and author of the newly released book Shaky Ground: The Strange Saga of the U.S. Mortgage Giants, was a special guest during the 2015 NMHC Board of Directors and Advisory Committee Fall Meeting.
Interviewed by
NMHC President Doug Bibby, McLean was asked a range of questions on the housing
crisis, Fannie Mae and Freddie Mac’s role in it, the future of the GSEs and much
more. The following is a selection of some of the most compelling questions
from the in-depth discussion, including from the audience, and McLean’s thought-provoking
answers:
Q: Why is it so hard to chart a course for Fannie Mae, Freddie Mac and the
Housing Finance System as a whole?
McLean: No matter what they did, some people wanted to kill them.
There were a lot of reasons for the resentment towards Fannie and Freddie,
particularly, with all the money they made in the 1990s and the lavish
executive salaries.
The resentment hardened after the financial crisis and with some saying they
were solely responsible. But I think that accusation is laughable. Big supporters
like former Congressman Barney Frank ran from supporting them then. The
financial crisis had nothing to do with putting people into homes. The majority
of the problem came from second mortgage losses that came from upper income
borrowers who refinanced their homes.
Q: Let’s review the math around Fannie, Freddie and the housing crisis. There
was $187 billion from the U.S. Treasury and then they returned more than $242
billion. What are your thoughts?
McLean: There was that headline grabbing number of $187 billion - the
amount of money they took from taxpayers. I think it’s intellectually dishonest
to say that Fannie and Freddie have not paid back Treasury. The thing is that
it is a made up number. Estimates of future losses were included and the line
wasn’t drawn on current cash needs.
I never want to accuse people of lying. But there has been speculation that the
government wanted Fannie and Freddie profits for deficit reduction and highway
spending.
Q: Who do you believe was to blame for the housing crisis?
McLean: It’s really interesting that you can have a real debate that Fannie
and Freddie’s underwriting led to the financial crisis. But you could also
argue that when Wall Street’s low lending standards stepped in, that’s when the
crisis happened.
Also, if the plug were pulled on Fannie and Freddie, who would then finance the
mortgage market - well, the banks. But are the banks not government-sponsored enterprises?
They received their own bailout in the last crisis. In my opinion, it’s good to
have a balance of power between the two.
Q: Do you think the Federal Government
should be involved in the housing market?
McLean: Early on I questioned the government’s involvement in the
housing market. However, my views have become more nuanced. Now, it’s clear
that there wouldn’t be a 30-year fixed mortgage without their involvement.
Q: What about the people who question Fannie and Freddie’s involvement in the
market?
McLean: I do think it’s interesting when people say that Fannie and Freddie
didn’t provide any value or reduce mortgage rates. If you look at the years
since the crisis, I believe Fannie and Freddie are 80 percent of the market and
the private market hasn’t been making even a dent. (It is important to point
out that Doug Bibby chimed-in here noting the fact that in multifamily, private
capital has come in very strong and that Fannie and Freddie are about 35
percent of the market.)
Q: What if Fannie and Freddie were sold back? Can they really be put on equal
footing with other market players?
McLean: Where I am right now is that
Fannie and Freddie should operate like they did in the past. But they should do
it a way that limits the executive pay and provides a strong regulator when the
market starts going crazy - then, you need to raise G-fees. You don’t want
these monoliths to become government beauracracies. I’m afraid, when it comes
to any well thought out policy for Fannie and Freddie, the government will
lurch instead.
Q: What do you think will indeed happen to Fannie and Freddie?
McLean: I worry that nothing is
going to happen. During the last election, the lawmakers said the problem was
Fannie and Freddie and now they just don’t talk about it.
Q: Do you think that in the
Administration or on the Hill there is an awareness of the declining
homeownership rate?
McLean: I believe homeownership has become somewhat of a dirty word. It’s
become something you don’t say politically, which I think is unfortunate.
Recently, I was on a panel with Former Chairman and CEO of Fannie Mae Frank
Raines and he talked about how homeownership is one of the ways to build
wealth.
And I think it’s all good for politicians and others to say that
homeownership is no good. But you’re taking away something that has been a
source of security and savings for generations. Hopefully, it will become
something that people will be able to talk about in a rational way again.
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