Fannie Mae, Freddie Mac Bailout Risk Rising

Fannie Mae and Freddie Mac, entities that received $188 billion in bailout funds in 2008, are at risk again, according to the Federal Housing Finance Agency.
6:48 | 03/18/15

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Transcript for Fannie Mae, Freddie Mac Bailout Risk Rising
Okay. It's Wednesday march 18 the markets in new Yorker open and her big number this morning is 188. Million. That plus the amount of money the US government pumped in to save Fannie Mae and Freddie Mac back in 2008 during the financial crisis. Fannie and Freddie as they are now under government sponsored entities that underpin the whole US mortgage market. Now I government watchdog reveals that could be in trouble again hello everyone I'm tired Hernandez in New York the report. Coming from the Federal Housing Finance Agency says that Fannie and Freddie declining profits and current capital cushion leave them vulnerable. Mark what's going on with Fannie and Freddie I'm joined by Yahoo! finance columnist and author of the book liberty for all Rick Newman good morning wreck at. Are right though Fannie and Freddie have been able to pay back that huge amount of money they received from the Treasury's so what's the problem now. Well the government is saying that if we hit another housing bust like we saw beginning in 2006. Running till about 2012. Fannie and Freddie could end up losing money again and once again. Require a bailout from the federal government so they're not saying that there's not a problem right now they're doing fine. And as you pointed out the government is actually made a profit on these two housing agencies. They had they got about a 188 billion dollars your big number but they have since paid back. More than 200 billion dollars. Because they're they're obligated now to turn their profits over to the treasury so the government has made a profit on this this is not the way you want the government to fund itself. But for now it's it's okay but they're saying look we meet we need to do something with these agencies so that we don't. Face a problem in the future just like them when we just got through so most. People kind of go through their lives having no idea what right he and Freddie are what they do until they're ready to buy a house. And then they may still not completely understand to give us a little background on you know Fannie Mae and Freddie Mac and also you know how do they make money they make act p.'s right. Chair so when you when you get a mortgage go to a bank. The bank AMP Wells Fargo Citigroup. Bank of America whatever. And what after you've made the deal for your mortgage what most banks do is they actually sell that security that that loan is a security. That they that Fannie Fannie Mae and Freddie Mac will package into what are called mortgage backed securities these are huge asset classes there actually a normal. Part of their part of the housing market this has been going on at least since the 1980s. And what this does the ability to package these into securities that investors buy into the institutional investors mostly. It it gives banks an incentive to keep making these loans and there's a lot of money moving through which actually helps keep mortgage rates low so that's that's what Fannie and Freddie do. The problem is that they're also used to Fannie and Freddie are now basically government entities there they're not public private they are government and eighties they used to be they used to be about half the market for this in the rest used to be private entities that would do it. Just for prop just for a profit motive doesn't those private securitize there's are gone. And Fannie and Freddie is basically only show in town so we need them sort of as the middleman. In in this part of the housing markets keep mortgage rates let's game to keep money available for homeowners that that's what they do and that's what they're important. So and correct me if I'm Ron they make their money when they A sell these products they collect fees extravagant if they get fees for creating these securities. And you know right now we're seeing something of a decent housing market currently has been on an uptake so it's a what is the problem here in terms Fannie and Freddie. The problem is that there they're the only game in town. And we have to decide whether we want wrote really run once the government. To be dominating the housing market the the housing market the whole market selling homes buying homes depends on the money being there for but for buyers. And with the without the federal government this market would not exist right now if we so this is not the way it used to be it's not the way. Most people want it to be. But we've now got these two agencies and we've got the government saying. You know we do stress tests on banks now to make sure they can survive a sharp downturn they're saying Fannie Mae and Freddie Mac cannot survive a sharp downturn. Without the kind of bailout they got before so they're basically just waving a red flag and sing guys. We we need to do something about this we need to figure out a waiting to go back. Get back to the sort of my housing market we really want to hug. So I have Fannie and Freddie and at fan he and Freddie indicated what they intend to do or to take any steps in how might that impact it's. Yeah I it's not up to them it's up to congress. And they're been several plans in congress the Obama administration has a plan meaning general the idea is to. Reduce the importance of Fannie Mae and Freddie Mac serve diversify that part of the market so we're not totally dependent on just these two government agencies. Reform this market so there's and say in incentive for private. Companies to come back in and make money doing this. But that requires congress to do some things and this is such authority problem I mean this discussion we're having here tells you how thorniest problem is. It's sort of working right now. Not mortgage lending is coming back so nobody really. There's no urgency to do anything about it and I think what's happening where he's seeing this watchdog agency is trying to create a little bit of urgency. Our right to basically we have private entities wanting to come in at this point that would still require some congressional action for them to be to do this business if they want to tip. No that is the not really but. Fannie and Freddie are so dominant right now and they just have advantages be by the virtue of being government agencies that I mean. Have almost literally 100% market share nobody wants to compete with them because nobody can so. You have to. Downsize Fannie and Freddie and sort of you know that. They do options range from downsizing them to privatizing them to creating a plan so that they can disappear gradually over time as they're replaced by. Private sector elements that could do much of what they do now course that would have to be regulated it's complicated. Who's gonna get favored status and the whole thing is just bogged down so nobody wants to think about this or deal with that right now and again to go back to this this watchdog agency. I think they're saying look if we ever get back to a poor work Fannie and Freddie need another bail out. The taxpayers are gonna say you've got to be kidding me how could you guys not have solved this problem after all this time and they're trying to get some attention to that problem. All right a problem there but a solution. Not so easy Rick Newman from Yahoo! finance thank you so much for your thing she attacked. You can of course keep up with the latest headlines right here on you've been watching the eight number I'm tired Hernandez New York.

This transcript has been automatically generated and may not be 100% accurate.

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