In their February 2000 monograph, Nationalizing Mortgage Risk, Peter J. Wallison and Bert Ely projected that, in order to meet the 15 percent annual rate of profit growth promised to Wall Street, Fannie Mae and Freddie Mac would have to hold or bear the credit risk of almost half of all residential mortgages in the United States by the end of 2003. That earlier study was based on 1998 data. Now, two more years of data show that the principal trends identified in the study have continued: Fannie and Freddie are still growing faster than the secondary mortgage market and will eventually have to expand into other areas of the economy to sustain that growth. However, the unusually strong mortgage market in 1999 and 2000 allowed Fannie and Freddie to meet their profit goals without taking on as much new risk as initially projected. If the economy’s weakening since late 2000 appreciably slows mortgage growth, Wallison and Ely predict that this process will reverse.
At this briefing, Wallison and Ely will distribute and discuss their new data and its implications for the future of Fannie Mae and Freddie Mac.
