The True Value of Freddie Mac
There's been a lot of talk in recent months about the payment of billions of dollars to the Treasury by Freddie Mac and Fannie Mae (the GSEs). That's understandable. Freddie Mac's seven straight profitable quarters show a remarkable reversal of fortune. And this reversal is one key reason people are wondering when the GSEs might go "net positive" with the taxpayers.
This new public attitude is not just gratifying, it's meaningful. For the housing markets are growing stronger, and Freddie Mac's new book of business – high-quality mortgages from 2009 and later – has grown to more than two thirds of our total portfolio.
But for all the deserved focus on our contributions to the taxpayers, people shouldn't overlook our other contributions that are no less essential. Freddie Mac's work to sustain the housing market through a five-year slog back from the depths of an historic housing crisis has its own immense value. And this value is measured in the tens of billions of dollars.
- Freddie Mac's benefits begin with liquidity – $1.9 trillion in funding for the combined single-family and apartment markets since the start of 2009. Freddie Mac and Fannie Mae provided roughly 70 percent of the residential market's liquidity in the first quarter of this year, and even more in earlier years after the crisis. Experts across the political spectrum have noted that without support from the two GSEs throughout this period, the damage to housing and the broader economy would have been worse by many billions of dollars.
- All this liquidity helps keep costs low and saves consumers money. Since the beginning of 2009, Freddie Mac bought or guaranteed nearly $1.4 trillion of refinance mortgages, helping more than 6.6 million homeowners. And for the Freddie Mac loans refinanced in the first quarter of this year alone, homeowners will save roughly $2.1 billion in interest payments over just the first 12 months of their refi.
- Freddie Mac's foreclosure avoidance efforts also carry huge benefits. Since the start of 2009, the company has helped more than 830,000 families avoid foreclosure. The value of saving that many homes from foreclosure reaches as high as $36 billion (an estimate that includes losses to borrowers and Freddie Mac, and the deadweight losses of foreclosures to the economy as a whole).
There are plenty of other examples of the same essential point. If not for the steady, vital work of Freddie Mac and Fannie Mae since the crisis, the damage to the housing market and U.S. economy would have been far worse. And the housing recovery might still be a hope, instead of a reality.
So make no mistake – after years of heavy losses and harsh criticisms, we're glad to be profitable again at Freddie Mac and to return funds to the Treasury and the taxpayers. But most of all, we are grateful for the opportunity to serve our vital housing mission, and to vindicate the decision by policymakers to keep us alive five years ago.
Freddie Mac's mission is to provide the housing market with liquidity, stability and affordability. That's what we do every day, thanks to specialized people and infrastructure. That's what enables the profits we are generating for the taxpayers. And for all the welcome value of our infusions to the Treasury, that housing mission remains the most fundamental and enduring value of Freddie Mac.
* Ross Kari left his position at Freddie Mac in November 2013.
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