SAN DIEGO-News sources are reporting that Fannie Mae and Freddie Mac earned record profits in the first quarter, prompting some experts to say that these profits may be used to halt raising the federal debt ceiling. Gordon Gerson of Gerson Law Firm here tells GlobeSt.com that he agrees this could be the unanticipated outcome—unanticipated because of how much scrutiny and criticism the GSEs have undergone recently.
“It's clear that we're on the cusp of taxpayers being paid back for the bailout or backing up of Fannie Mae and Freddie Mac, and what's more remarkable is that despite some of the voices saying we need to restructure Fannie Mae and Freddie Mac, at the present time they're a savior in the federal government, which is something I don't think any of us expected,” says Gerson. “It's ironic that Fannie Mae and Freddie Mac, which have been beaten up publicly for many years, are now going to be our source to avoid more borrowing because of their profitability. It's an unusual turn of events.”
Many industry experts take the position that more private capital is needed in the market, and no one can doubt that position, says Gerson. “But it's also so unique to all the headlines of the past three years that this is how we're going to pay off our federal debt—with Fannie Mae and Freddie Mac profits.”
The GSE's robustness may be a reflection of a healthier economy overall than we've had in the recent past. In fact, with respect to loan closings in general, we are in a period where there is an enormous amount of capital sitting on the sidelines that lenders now want to deploy into commercial real estate lending, Gerson says. As GlobeSt.com reported last week, this development is spurring a frenzy of competition among lenders, which Gerson says could lead to relaxed underwriting standards. However, as we return to a healthier economy, there will be other sources of good investments in which to deploy capital aside from commercial real estate, preventing us from sliding down the slippery slope that preceded the Great Recession.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
