For release:
Monday Sept. 8, 2008

C.A.R.: Keep Fannie, Freddie

Takeover could lead to demise of fixed-rate loans, dramatic drop in homeownership

LOS ANGELES (Sept. 8) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles, following the U.S. Dept of the Treasury takeover this weekend. The government sponsored enterprises (GSEs) provide capital to the mortgage markets and promote homeownership and housing affordability.

"While the short-term impact of the Treasury’s actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission," said C.A.R. Executive Vice President Joel Singer. "A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.

"Without an institutionalized mortgage-backed securities market, mortgage capital will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements," he said. "The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation."

C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.

The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

"We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac," he said. "California’s and the nation’s housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating."

C.A.R. is urging lawmakers to support continued government involvement in supporting the institutional secondary market and its role in creating homeownership opportunities.

"We applaud the U.S. Dept. of the Treasury for increasing the GSEs portfolio limits, but we will be asking Congress to enact legislation to ensure the two companies continue to fulfill their mission," Singer said.

Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with nearly 175,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

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