The recent housing recovery has given new life to government sponsored entities Fannie Mae and Freddie Mac. Today, Freddie Mac reported that it earned $5 billion in the latest quarter, its seventh straight profitable quarter. Freddie now has a net worth of $7.4 billion and is required to pay all cash on hand above $3B after having been bailed out by the government to the tune of almost $100 billion during the housing crisis. Freddie Mac and Fannie Mae purchase mortgages from lenders, package them together and sell them as securities through Wall Street and receive payments of principal and interest.
President Obama held a press conference yesterday in Phoenix, Arizona laying out plans to possibly wind down Fannie Mae and Freddie Mac or restructure the two government sponsored entities. The plans would call for more private funding in the mortgage lending business along with some form of government backstop. The government backstop would only occur after all private funds have been depleted.
The Mortgage Bankers Association (MBA) reported this morning that mortgage applications rose in the latest week, despite home loan rates edging higher. During the beginning of the summer, applications dropped as potential borrowers had to deal with higher rates due to a possible pullback in a stimulus program enacted by the U.S. Federal Reserve Bank. The program is geared towards keeping interest rates low and promoting economic growth. The MBA said that its purchase index rose by almost 1%, low by historical standards, but a gain nonetheless.