2019-03 Fannie Mae and Freddie Mac become acceptable again

Last week I mentioned that a week before Lehman collapsed, Fannie Mae and Freddie Mac were saved from bankrupcy. This is discussed in the Wall Street Journal article.
Fannie and Freddie are unusual companies, often called government-sponsored enterprises (GSEs). They buy mortgages from originators and convert them into securities. They serve as the backbone of the mortgage market in the US. There is an implicit understanding that they will be bailed out by the US government if they get into trouble. This is what happened on September 8, 2008.
The companies were money-making machines. Because of the implicit protection from the US government, they could borrow at very low rates. But during the housing boom, they took on too much risk were no longer viable.
Initially, the government wanted to eliminate the companies but now they have regained politicians' support. In part, it is because, as the market rebounded, they started making large profits. The government bailout involved taking over almost 80% of the companies and suspending dividends to existing shareholders. As the companies recovered, they paid dividends to the US government that greatly exceeded the amounts they received. In the end, the bailout of Fannie and Freddie not only avoided market meltdown (though only for a week) but also  provided a profit to the taxpayers. The picture below shows how big were the amounts involved.

The next figure shows the role of Fannie and Freddie in the US mortgage market. Note that
- their share of mortgages financed or insured has fallen during the housing boom;
- it has since rebounded
- private financing almost completely evaporated between 2008 and 2017.