Summary
What Freddie Mac is doing now is supposed to do 3 years ago (a call from Allen Greenspan in May 2005), specifically to liquidate substantially with little disruption to the housing market in 2005. The call from Allen Greenspan came at the time when the combined holdings (of mortgages and mortgage backed securities) of Freddie Mac and Fannie Mae were far above the level needed to fulfill their respective housing missions. He urged the Congress to curb the growth of these two firms since they pose “very serious” risks to the financial system. Their growth disrupted the financial system since later part of 2007. Now Congress and President acted to do what supposed to do three years ago. The 10 to 15 billion-dollar packages for jumbo mortgages may not provide expected results. Probably, it may need to increase again.
Analysis
According to Allen Greenspan, “The strong belief of investors in the implicit government backing of Fannie Mae and Freddie Mac does not by itself create problems of safety and soundness for these firms, but it does create systemic risks for the U.S. financial system as the these two firms become very large. The growth of these two firms should be around to fulfill their missions.
