Despite assurances that the takeover of Fannie Mae and Freddie Mac would be temporary, the giant mortgage companies will most likely never fully return to private hands, lawmakers and company executives are beginning quietly to acknowledge.
The possibility that these companies — which together touch over half of all mortgages in the United States — could remain under tight government control is shaping the broader debate over the future of the financial industry. The worry is that if the government cannot or will not extricate itself from Fannie and Freddie, it will face similar problems should it eventually nationalize some large banks.
The lesson, many fear, is that a takeover so hobbles a company’s finances and decision-making that independence may be nearly impossible.
In the past six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.
Lawmakers have given the companies access to as much as $400 billion in taxpayer dollars, a sum more than twice as large as the pledges to Citigroup, Bank of America, JPMorgan Chase, General Motors, Wells Fargo, Goldman Sachs and Morgan Stanley combined.
Regulators defend those actions as essential to battling the economic crisis. Indeed, Fannie and Freddie are basically the only lubricants in the housing market at this point.
But those actions have caused collateral damage at the companies. On Monday, Freddie Mac’s chief executive, David M. Moffett, unexpectedly resigned less than six months after he was recruited by regulators, having chafed at low pay and the burdens of second-guessing by government officials, according to people with knowledge of the situation. Fannie Mae has also experienced a wave of defections as people leave for better-paying and less scrutinized jobs.
Last week, Fannie Mae announced that it lost $58.7 billion in 2008, more than all its net profits since 1992. Freddie Mac is also expected to reveal record losses in coming days.
Most important, by taking over the companies, lawmakers have gained a lever over the housing market and national economy that many — particularly Democrats — are loath to discard, legislators say.
“Once government gets a new tool, it’s virtually impossible to take it away,” said Rep. Scott Garrett, R-N.J., a member of the Financial Services banking subcommittee. “And Fannie and Freddie are now tools of the government.”
One reason that Fannie and Freddie will never return to their earlier forms is simple mathematics: To become independent, Fannie Mae and Freddie Mac must repay the taxpayer dollars invested in the companies, plus interest. Even if the firms achieve profitability, it could take them as long as 100 years — or longer — to pay back the government. And almost no one expects the companies to return to profitability anytime soon.