Bailouts Should Not Be the Norm
When COVID-19 sent waves through our financial markets in March 2020, I was the regulator overseeing most of America’s mortgage market. When the usual calls for Wall Street bailouts came, others, such as the Federal Reserve, responded generously with the public’s money. I was an exception. Despite the dire warnings that our mortgage market would collapse if I did not give in, we gave no bailout—and our mortgage market continued to function well.
The American economy lost 22 million jobs from February through April of 2020. As in 2008, these historic job losses posed significant risks to our mortgage market, as the ability of borrowers to pay came into question. The Federal Housing Finance Agency (FHFA), which I headed, and which supervises Fannie Mae and Freddie Mac, reacted quickly to establish programs to assist borrowers and renters. We expected to be repaid any deferred mortgage payments. Many private lenders voluntarily established programs similar to ours.
These assistance programs did put additional stress on large segments of the mortgage industry—particularly servicers, those entities that collected payments and forwarded them along to the ultimate mortgage investors. Despite having paid these mortgage servicers ahead of time to shoulder this risk, many in the mortgage industry demanded the federal government take over these payments. After all, everyone else, such as the airlines, were being rescued.
I had the advantage of having financial statements for all the servicers that did business with Fannie and Freddie. We knew their financial state. We knew they had liquidity and did not need a public rescue. Th
Article from Reason.com