Fannie, Freddie Are Under Fire; S&Ls Questioning Continued Need For Mainstays of Home-Loan Industry
Fannie Mae and Freddie Mac conjure up chocolates or hamburgers in the minds of many consumers, but these two multibillion-dollar corporations sell fare not found in any candy store or McDonald's restaurant: low-interest loans for home buyers and low-risk securities for investors.</br></br>As congressionally chartered corporations, Federal National Mortgage Association (known as Fannie Mae) and Federal Home Loan Mortgage Corp. (or Freddie Mac), funnel dollars each year to home buyers. They do this by creating what is called the secondary home-loan market-purchasing home loans from savings and loan institutions or other lenders and then selling securities backed by the mortgages.</br></br>The popularity of the securities, coupled with Fannie Mae's position as the largest borrower after the U.S. government, makes the two D.C. corporations titans of Wall Street and mainstays of the home-loan industry.</br></br>Although the home-loan industry pushed Congress in the late 1960s to use the government corporations to expand the then-tiny secondary mortgage market, a growing number of S&L executives now believe that Fannie and Freddie have done the job too well.</br></br>Fannie and Freddie have helped thousands of S&Ls weather deregulation of the industry and interest-rates swings that began in the late 1970s, woes that home-loan lenders say would have been far worse if Fannie and Freddie had not been around to buy low-interest loans from profit-poor institutions.