Word: lockhart
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...Lockhart, for his part, agrees that a breakup may be the answer. But no matter what is done, Lockhart believes that fixing Fannie and Freddie is essential to fixing the real estate market. In his speech, Lockhart said, "It is crucial that we get the restructuring done right for all present and future homeowners and renters...
...What I have seen is that government insurance programs are high-risk," said Lockhart. "It is often difficult in a political environment to calculate or charge an actuarially fair price." It is essentially a moral-hazard argument. Lockhart believes that the government will never be able to accurately price the guarantees that Fannie and Freddie offer mortgage lenders and investors. And as long as the government is offering that insurance too cheap, banks will be encouraged to make loans they shouldn't. And that will lead to more losses for Fannie and Freddie down the road...
...government has pumped $85 billion in equity into the two companies to keep them afloat. What's more, the Treasury and the Federal Reserve have purchased more than $700 billion of Fannie and Freddie mortgage securities. Still, the turnaround of the two companies is not yet in sight. Lockhart said the bottom lines of Fannie and Freddie probably won't rebound for another year...
...That ultimately left the job of turning around the two troubled giants to Lockhart, who was formerly the chief operating officer of the Social Security Administration. He says he meets with senior executives of both companies once a week; his staff interacts with Fannie and Freddie every day. Lockhart believes that the government has done a better job of running Fannie and Freddie than the bottom lines of the two companies suggest. Most of the losses suffered by the mortgage giants, he notes, resulted from mortgages that Fannie and Freddie backed before they were taken over. Furthermore, part...
...Still, for the long haul, Lockhart thinks it would be a bad move to permanently nationalize the two firms. Instead, he prefers returning them to the private market, perhaps in the form of something close to a public utility that would charge a fee to homeowners or lenders to subsidize lower mortgage rates...