Fannie, Freddie’s Role Is Shrinking?

Mortgage giants Fannie Mae and Freddie Mac, two government-sponsored enterprises, will likely be guaranteeing a lot fewer new loans over the next decade, as the private sector steps up its role, according to a new report by the Congressional Budget Office.

During and after the financial crisis — from 2008 to 2013 — Fannie Mae and Freddie Mac backed about 60 percent of new mortgages. However, the CBO report predicts a big change: The two firms likely will only back about 40 percent of new mortgages by 2024 as private sources of capital take their place.

Fannie and Freddie’s market share is already showing signs of shrinking. In the first half of 2014, they backed about 50 percent of new mortgages.

Neither Fannie Mae or Freddie Mac issue loans directly. Instead, they purchase loans and resell them in bundles. In 2011 and 2012, they increased the fees they charge to guarantee mortgages, which reduced their advantage over private-sector firms.

Source: “Fannie Mae, Freddie Mac to Lose Market Share to Private Capital: CBO,” Reuters (Dec. 16, 2014)