Fannie and Freddie: Is Reform, Merger or Demise Better for the Economy?

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According to Gil Priel, Co-founder of the Peak Corporate Network and Managing Director and Principal of the Peak entities, accepting lower net returns on foreclosed properties could have a more positive impact than mergers or phase outs.

Putting liquidation of these assets on the fast track could provide a more rapid stimulus to the economy than protracted legislation to shutter or combine GSEs.

According to Gil Priel, Co-founder of the Peak Corporate Network and Managing Director and Principal of the Peak entities, accepting lower net returns on foreclosed properties could have a more positive impact than mergers or phase outs.

As the Obama administration weighs options to address the drag placed on the ecomomy by taking mortgage guarantors Fannie Mae and Freddie Mac under conservatorship, the most recent proposal introduced into the U.S. House of Representatives to combine the two agencies and sell-off mortgages as mortgage-backed securities still relies on the Federal government as a backstop to prevent defaults. A simpler, more pragmatic solution, according to Priel, is for both agencies to reassess their requisite net gain formula for quicker disposition of foreclosed assets.

As of March 31, 2011, Standard and Poor's values Fannie and Freddie's combined REO holdings at approximately $20.4 billion. Putting liquidation of these assets on the fast track could provide a more rapid stimulus to the economy than protracted legislation to shutter or combine GSEs.

"At issue is a lack of efficiency and inflexible valuations on the net Fannie and Freddie expect on their REOs," states Priel. "For example, if they don't clear 88% fair market value on a short sale transaction, it stays on their books, remains a drag on their balance sheets, the taxpayers, and ultimately the economy." Priel asserts that the pursuit of lower net returns on REO sales by GSEs, along with streamlining the sales process, could not only yield faster more positive results but also set the stage for Fannie and Freddie to provide much-needed stability to a fragile mortgage industry.

The Peak Corporate Network, headquartered in Woodland Hills, California is a leading authority in the real estate industry and provides a full array of comprehensive real estate services nationwide including mortgage lending, loan servicing, residential short sale, 1031 Exchange, trustee work, foreclosure services, and residential and commercial real estate brokerage services. For more information, visit http://www.peakcorp.com

The Peak Corporate Network is not a business entity; the brand represents a group of related separate legal entities, each providing its unique set of real estate services.

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Evon G. Rosen
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