So far, the government has spent $126 billion bailing out mortgage lenders Fannie Mae and Freddie Mac. What should the future of such government-sponsored enterprises (GSEs) be? Chris Gamaitoni of Compass Point Trading and Research, and Armando Falcon of Falcon Capital Advisors, shared their insights.
“We absolutely need them [Fannie and Freddie] as an intermediary in our market right now,” Falcon told CNBC.
“And let’s accept it—this will be a long transition until we move into a new model of how we structure our housing finance system going forward.”
"We’ve got to get back to the healthy mix," he continued. "The way you do that is you put that infrastructure of Fannie and Freddie to use as public entities—that’s the only way you will create a private market."
Falcon emphasized that in order for the U.S. housing market to get back on balance, it needs to have a “government backstop.”
“So turn Fannie and Freddie into a government agency that serves as a backstop function,” he suggested. “If you’re going to privatize Fannie and Freddie, they’re never going to give back the 70 percent market share they have right now.”
Counterpoint: Go Private
In the meantime, Gamaitoni said he would like to see a transition to a “covered bond-type of market” and allow the private banking system backstop to take over in times of turmoil.
“There may be some room for government backstop for liquidity purposes...but as far as the day-to-day operations, I think we can utilize the private banking system through a covered bond market,” he said.
Fannie Mae shares today:
Freddie Mac shares today:
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Disclosures:
No immediate information was available for Falcon or Gamaitoni.
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