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As promised here is the second-ranked trend of the thousands. Written by Brian Summerfield, Online Editor of Realtor Magazine.
We’re getting close! Here’s the second-ranked trend on our list of top real estate developments of this decade:
#2: The Fall of Fannie and Freddie
When the financial system that underpinned mortgage financing for more than three decades collapses, it’s a pretty big deal. The fact that it’s not number one on the list of most important developments over the past 10 years should tell you something about the kind of decade we’ve had in real estate.
Fannie Mae (established in 1938 and privatized by Congress in 1968) and Freddie Mac (created as a government-sponsored enterprise, or GSE, in 1970) together comprised more than half of the secondary mortgage market in the United States in recent years.
But all that ended on Sept. 7 2008, when FHFA Chair James Lockhart III announced his decision to put both Fannie and Freddie under the organization’s conservatorship after the value of their shares had plummeted by half during the preceding week. Henry Paulson, the U.S. Treasury Secretary at the time, supported the move, and explained that after reviewing the financial situations of the GSEs, “it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.” (Translation: We’re not going to throw good money after bad business practices.)
The near-failure of Fannie and Freddie also set the tone for what was to come in the broader economy. That same month, financial institution Lehman Bros. went bust after more than a century and a half of operations, and AIG’s rescue plan was announced.
Besides the general economic uncertainty it ushered in, I think the most shocking thing about this was the speed of the decline. In 2008, the same year they all but folded, Fannie Mae and Freddie Mac were ranked at numbers 53 and 54, respectively, on the Fortune 500 list. When it was clear that these GSEs weren’t going to hold up on their own, the decision to pass them over to FHFA conservatorship was similarly speedy, with Lockhart, Paulson, and Fed Chief Ben Bernanke all affirming it was the right move at the right time.
Now, Fannie and Freddie could get on the path some sort of comeback during the next decade—indeed, many see their resurrection as essential. But even if they are restored, their role in the secondary mortgage market will not be the same as it was before those dark days of September 2008.”
Watch for the blog on the third-ranked trend of the real estate market for the decade!
