As the end of the first quarter came to a close saw an article that I found to be so absurd it had to be true. Fannie Mae had moved to the top 5 spot of the Fortune 500 club. You read that correctly. Fannie Mae moved from 81st last year and now sits right behind Wall Mart, Exxon, Conoco, and Chevron. This is the same company that has been deemed “insolvent” and “unsustainable”. Fannie Mae is now just above Ford (the only US car company to not take bailout funds) on the illustrious list.
Okay, so nine out of every ten loans made today are financed or guaranteed by Fannie Mae, Freddie Mac or their federal relative Ginnie Mae. That is primarily because the banks that took our tax dollars to keep them solvent won’t lend without a crutch such as Fannie Freddie or Ginnie. This is not however what caused Fannie’s meteoric rise to the top of the list. “Accounting changes.” That’s it. As simple as changing the rules in the middle of the game. Due to the changes Fannie’s gross revenue shot up from $29 billion to $154 billion. So their gross revenue quintupled because they were allowed to add back in some bad loans that actually caused them to lose an additional $14 billion dollars and running their current deficit tab to $91 billion dollars. If memory serves me correctly I think Fannie and Freddie got their hands slapped for similar sleight of hand right before you and I bailed them out with our tax dollars.
Fannie and Freddie serve a huge purpose in the housing sector. The Housing sector plays a huge role in the economy. I am not advocating we kill Fannie or Freddie. I am simply pointing out that for us to move forward we need to make changes that make sense. We need to stop moving the problem and solve the problem.