“Ironically, while this study was put forth to allegedly show the pitfalls of Fannie’s and Freddie’s ‘ambiguous relationship with the federal government,’ it does not take into account the major role that the GSEs played in helping to maintain the nation’s finance system during times of economic crisis.
“Specifically,” Seiders continued, “major events come to mind in which the secondary market helped the nation’s home buyers avoid the negative repercussions of major global and national economic emergencies. In 1998, the economies in Southeast Asia were reeling, the Russian market collapsed and the Moscow stock exchange shut down. This precipitated a nearly 1,000 point dive in the Dow Jones average. Financial markets across the world froze up and credit became scarcer.
“But the secondary mortgage market maintained its poise, and the GSEs remained funded and in fact raised record amounts of capital by issuing debt and even equity in the depressed market. As a result, the 1998 credit crunch did not affect the average home buyer seeking a typical home.
“More recently, the Sept. 11, 2001 attack that shook nearly every aspect of American life did not damage the mortgage market or the ability of average Americans to buy homes. During the week of Sept. 11, the GSEs offered stability and confidence to a shaken financial system by continuing to buy mortgage loans, purchase mortgage-backed securities and issue short-term and overnight funding.
“To this day, Fannie Mae and Freddie Mac continue to play a critical role in the nation’s housing finance system. The two mortgage financiers have reduced mortgage interest rates, linked mortgage finance to the national and international capital markets, eliminated regional disparities in interest rates, cushioned local economic downturns and brought standardization and innovation to the mortgage markets. And they have been at the forefront of technical innovations to streamline the mortgage process to reduce the time and cost involved in obtaining a mortgage.
"Furthermore, Fannie Mae and Freddie Mac have led efforts to create programs to expand homeownership and increase the supply of affordable rental housing by providing support to primary market lenders for the development of hybrid mortgages that combine the benefits of adjustable and fixed-rate loans; lower downpayment requirements; and new mortgage products for borrowers with tarnished credit histories.
“It’s a shame that the Federal Reserve study did not delve more closely into these matters,” Seiders concluded.