How Fannie and Freddie Prop Up America's Favorite Mortgage | WSJ — Transcript

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1. 0:00owning a home has long been a staple of
2. 0:03the american dream
3. 0:04and at the center of that are two big
4. 0:06companies
5. 0:08fannie mae and freddie mac
6. 0:10sound familiar
7. 0:12maybe you haven't thought that much
8. 0:13about them since the 2008 financial
9. 0:15crisis the federal government is
10. 0:16stepping into it to stabilize fannie mae
11. 0:19and freddie mac the two companies almost
12. 0:21collapsed under the weight of an
13. 0:22unprecedented housing bust but then the
14. 0:25government stepped in to bail them out
15. 0:27now the trump administration has asked
16. 0:29for plans to reshape fannie and freddie
17. 0:32but a housing finance overhaul could
18. 0:34mean privatizing or shrinking the two
19. 0:36companies a process that some believe
20. 0:38could mean mortgages will become more
21. 0:40expensive and less affordable for
22. 0:42millions of americans
23. 0:45that includes the most popular home loan
24. 0:48in the u.s
25. 0:49the 30-year fixed-rate mortgage
26. 0:51homeowners like this mortgage because of
27. 0:53the low monthly payments and the
28. 0:55interest rate that doesn't fluctuate
29. 0:58we'll explain but first you have to
30. 1:00understand how fannie and freddie fit
31. 1:02into the u.s housing system
32. 1:07first homeowners borrow money from banks
33. 1:09or other lenders
34. 1:12then danny and freddie buy these
35. 1:13mortgages and package them into
36. 1:15securities
37. 1:17then they sell those securities to
38. 1:18investors
39. 1:20investors buy them because they're
40. 1:21considered safe
41. 1:23because fannie and freddie take on much
42. 1:24of the risk
43. 1:26lenders and banks benefit too
44. 1:28since the government takes on much of
45. 1:29the default risk
46. 1:31lenders can make more loans to more
47. 1:33people
48. 1:34together fannie and freddie now back
49. 1:36about half of new u.s mortgages
50. 1:39so why do some want to change the two
51. 1:41companies
52. 1:45some in washington want to shrink or
53. 1:47even get rid of fannie and freddie
54. 1:49and president trump himself has
55. 1:50indicated that he wants to roll back the
56. 1:52government's involvement in the two
57. 1:53companies
58. 1:54which have been under government control
59. 1:56since the financial crisis
60. 1:58but a housing finance overhaul could
61. 2:00mean privatizing or shrinking the two
62. 2:02companies
63. 2:03those looking to shrink fannie and
64. 2:04freddie argue that the government
65. 2:06shouldn't be involved in the housing
66. 2:07market to the extent it is now
67. 2:10they say that the private sector not the
68. 2:12government should be filling this role
69. 2:14but those who support fannie and freddie
70. 2:16say that homeownership is a path to
71. 2:18prosperity for the middle class and that
72. 2:20the government has a responsibility to
73. 2:22keep housing affordable
74. 2:24but now some are wondering what would
75. 2:26the u.s housing market look like without
76. 2:27fannie and freddie
77. 2:32well to start with many non-bank lenders
78. 2:34might find it harder to operate
79. 2:36unlike banks these firms don't have
80. 2:38deposits which means it will be more
81. 2:40expensive for them to lend money if
82. 2:42fannie and freddie go away
83. 2:44these so-called non-bank lenders make up
84. 2:46about half of new u.s mortgages today
85. 2:48and they're often the only path that
86. 2:50first-time borrowers or middle-income
87. 2:52families have for getting a mortgage
88. 2:54that's because in the last decade many
89. 2:56banks have focused largely on wealthy
90. 2:58borrowers when making mortgages
91. 3:00and the non-banks have moved in to fill
92. 3:02the space they left
93. 3:04beyond that no one's really sure what
94. 3:06the market would look like without
95. 3:08fannie and freddie
96. 3:11but let's consider other countries which
97. 3:13don't operate their housing markets like
98. 3:15the us does
99. 3:16in many countries long-term fixed-rate
100. 3:19home loans including the 30-year
101. 3:21fixed-rate mortgage aren't largely
102. 3:22available
103. 3:24instead mortgage rates reset depending
104. 3:26on the market
105. 3:27and even a one-point increase in your
106. 3:29mortgage's interest rate can add
107. 3:31hundreds of dollars to your monthly
108. 3:33payment
109. 3:34we can also look at the us before fannie
110. 3:36was created in 1938
111. 3:39back then borrowers had to come up with
112. 3:41much larger down payments often 50 or
113. 3:44more
114. 3:45mortgages also tended to last for just
115. 3:47five or ten years with a big balloon
116. 3:49payment that came due at the end
117. 3:52so future mortgages could look like this
118. 3:55or
119. 3:56not at all
120. 3:57much of it depends on how the government
121. 3:59plans to reshape fannie and freddie but
122. 4:02reshaping them won't be easy people like
123. 4:04the benefits they create including the
124. 4:0630-year fixed-rate mortgage
125. 4:08and right now there isn't much agreement
126. 4:10on either side of the aisle on how to
127. 4:11get rid of the government's involvement
128. 4:13in housing
129. 4:14at least not without completely
130. 4:16overhauling the way the housing system
131. 4:17works
132. 4:19so for now
133. 4:21fannie and freddie's future is still up
134. 4:23in the air
135. 4:29you