Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, the government-chartered mortgage-finance companies are doing what critics in the Federal Reserve and Congress had predicted.
Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Mac and Fannie Mae are purchasing their own mortgage- backed securities, helping reduce losses, company filings show. The large loans, above $417,000, made up almost a third of the U.S. market last year, according to the Mortgage Bankers Association.
Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter.
In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.
“They were granted expanded opportunity to help recovery in a troubled housing market and yet have appeared to focus on their own recovery,” said former U.S. Rep. Richard Baker, a critic of the companies who left office earlier this year to run the Managed Funds Association in Washington.
Congress had kept Fannie Mae and Freddie Mac out of the jumbo market to force them to concentrate on low- and moderate-income borrowers.
The change places taxpayers at greater risk “without facilitating the policy goals I believe the Congress had in mind when they eased these portfolio limits,” said Baker, a Louisiana Republican.
The slowness of Fannie Mae and Freddie Mac in injecting cash for new jumbo loans may have exacerbated the housing slump in markets including California and Florida, where prices have already fallen more than the national average, said Jerry Howard, president of the National Association of Home Builders.
“Had they been quicker into the marketplace, they could have helped slow the downward spiral in housing prices,” Howard said.
Congress created Washington-based Fannie Mae and Freddie Mac of McLean, Va., to promote home ownership by increasing financing and providing market stability. The companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt.
They profit by holding assets that yield more than their debt costs and from fees charged to guarantee bonds they create.
Fannie Mae and Freddie Mac posted record losses of $11.8 billion in the past three quarters as defaults on mortgages soared to the highest level in 30 years.
The National Association of Realtors estimated last year that Fannie Mae and Freddie Mac would buy $150 billion of jumbo loans in 2008. UBS AG analysts now say the amount may be $74 billion; the companies’ own projections indicate that they may not even reach that figure.
Freddie Mac said it would purchase $10 billion to $15 billion in jumbo loans and securities in 2008. Fannie Mae hasn’t made any public commitments to buy a set amount of the assets this year.
“So far, we haven’t seen as much impact as we anticipated,” said Paul Bishop, managing director of research for the Realtors association.
