The broader question is why are Frannie doing dumb things that obviously make the housing problem worse? Dixon quotes a number of critics saying that the two are trying to unload their losses on taxpayers:
According to White, the Valparaiso professor, foreclosing on a home typically costs Fannie Mae far more than a successful loan modification. But, he and others say, Fannie is willing to absorb higher losses because it knows taxpayers — not Fannie Mae — will eventually reimburse the loss…
“Fannie would rather foreclose all the bad and marginal mortgages now, even at very high loss rates, while losses are on the taxpayer, so that when it is once again a private company, these risky mortgages will be gone, and will not result in losses for its shareholders,” he said.
Georgia Institute of Technology accounting professor Charles Mulford, who studies how companies report their finances, said Fannie and Freddie feel no compulsion to maximize profits now that they are controlled — and subsidized — by the government. The companies, he said, are more interested in getting troubled mortgages, including foreclosed homes, “off the books so they can start anew, making new loans, loans that are more profitable.
My question here: Is it true that Fannie and Freddie think that they’re going to go private again at some point?
Part three of the series is coming up. Very good work by the Free Press.