BY RICHARD BEALES

Time can bring the undead to life again. It is 10 years since Washington took over Fannie Mae and Freddie Mac, injecting $187 billion to keep the overstretched U.S. mortgage-finance giants going as virtual zombies. Reforms have not yet touched this supposedly temporary fix.

Even on the tight leash of so-called conservatorship, fitted in September 2008, the two government-sponsored enterprises dominate the roughly $10 trillion U.S. mortgage market. Include Ginnie Mae, the comparably sized government-owned specialist in loans for affordable homes, and the trio has guaranteed 95 percent of all residential mortgage-backed securities issued this year, according to the Urban Institute.

Before the 2008 financial crisis, Fannie and Freddie had New York Stock Exchange shareholders and greedy executives to please along with their government masters. It was arguably the profit-motivated pursuit of lax, gung-ho private-sector lending that led to the enterprises’ downfall. Now, though, non-government players bear an even smaller slice of secondary-market risk than before the meltdown.

The GSEs help make U.S. 30-year fixed-rate mortgages possible. That’s perceived as promoting home ownership. Moreover, the market functions reasonably well. “Why fix what isn’t broken?” asked Pimco, a big investment manager, in a February publication. It’s one reason lawmakers are reluctant to interfere. At least the Frannie combo now serves only the government, an improvement on past conflicts. Guarantee fees have generally increased, too, reducing the implicit subsidy.

The UK is one country that manages with an almost entirely private-sector mortgage market. The home-ownership rate, around 64 percent per the Urban Institute, is similar to the United States, even if the typical mortgage is a different, floating-rate beast. Believers in markets, and government skeptics, prefer this model.

Extracting the feds from the U.S. market altogether would, however, be a political stretch. Some lawmakers as well as President Donald Trump’s administration have proposed hybrid structures with the government taking backstop risk. The difficulty is that most such plans ultimately involve the same hazardous mix of motivations that existed a decade ago.

There’s another reason for political inaction. Since the bailout, Fannie and Freddie have paid $279 billion in dividends to the Treasury, half as much again as they received, making them a handy piggy bank. Throw in a decade of inertia, and the status quo looks increasingly permanent.

First published Sept. 5, 2018

(Image: REUTERS/Jason Reed )