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.
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
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
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.