What Is the Future of Fannie Mae and Freddie Mac?

If the legislation proposed by Senators Johnson and Crapo becomes law, will mortgage rates rise, will getting a mortgage be even more difficult?

May 21, 2014 at 8:00AM

The future of Fannie Mae and Freddie Mac is up for debate.

A bill introduced by Senators Tim Johnson and Mike Crapo calls for the winding down of the mortgage giants. Given that both Fannie Mae and Freddie Mac have been instrumental players together in the U.S. mortgage industry for nearly 50 years, there is obvious speculation about what the future would hold without them. Will mortgage rates rise? Will getting a mortgage be even more difficult?

To find out more about the future of Fannie Mae and Freddie Mac, we interviewed Andrea Heuson, professor of finance at the University of Miami for her insight and perspective.

Q: What do you think the government will ultimately do with Fannie Mae and Freddie Mac? What impact will this have on the housing market?

A: The issue of Fannie Mae and Freddie Mac is the subject of a very contentious lawsuit against the government. The plaintiffs won a major victory recently and I think that eventually the government will settle with the folks who own shares in both of these entities in a way that will allow the government to close both and create a new entity or merge them.

We need a federal government agency that acts as a securitizer of single-family mortgages, much the way Fannie Mae and Freddie Mac did from the time they were founded until the early part of the first decade of this century.

That is a role that is purely administrative. The entity or entities would not be publicly traded or have permission to purchase securitized mortgages. They would also not act as investors and the single-family market would be fine. Our mortgage market was the envy of the world in that it allowed for the flow of credit into long-term household debt very efficiently for many years. As long as we have that federal entity that handles the administrative aspects of securitization then our mortgage market will be fine.

The current arguments about Fannie Mae and Freddie Mac stem from the value of the equity position in them and the equity holders' claim on the profits from the increase in the value of the mortgage-backed securities Fannie Mae and Freddie Mac purchased as investors, not from their role as securitizers.

Q: When do you think we will we see any progress be made on this front? Will any significant changes be made before the end of the year?

A: I don't think anything will be resolved this year. I can't see a major move before the elections in November and by then the year will be almost over.

This article What Is the Future of Fannie Mae and Freddie Mac? originally appeared on HSH.com.

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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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