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50 Legal Industry Update National Focus L A W R E N C E P L A T T , B R U C E H E I M A N , A N D K A R A W A R D , K & L G A T E S FREDDIE MAC AND FANNIE MAE ARE FRIENDLESS Neither Republicans nor Democrats in Congress are happy with Freddie Mac and Fannie Mae, although for very different reasons. Republicans have targeted the two GSE's for extinction for many years. Indeed, their elimination was a cause for celebration in the conservative movement during the housing bubble. Republicans regularly decried the "socialization of risk and privatization of gain," and roundly criticized the outsized compensation paid to Freddie and Fannie's executives, their financial reporting irregularities, and their significant spending on lobbyists. e financial crisis saw all their fears realized: the implicit federal guarantee became quite explicit with the U.S. government's takeover of Freddie and Fannie and taxpayer bailouts of $71 billion and $116 billion, respectively. No wonder that the new conservative mantra became "never again." Even the Democrats—once the GSEs' the staunchest allies, based on the argument that they facilitated homeownership opportunities for families of modest means—had a change of heart. By 2013, President Obama was saying, "For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag … It was heads we win, tails you lose. And it was wrong." Complaints have multiplied since the GSEs went into conservatorship. Fannie and Freddie pulled back from the market and only purchased loans made to pristine borrowers who pose the lowest risk of default. Recent earnings statements from the GSEs show this stark reality as they report that the average (weighted) loan-to-value (LTV) is 77 percent with average credit scores of 744. e recently released Home Mortgage Disclosure Act paints an even bleaker picture for families of color: African-American homeowners accounted for just 4.8 percent of the purchase loans originated in 2013, with denial rates of nearly 56 percent, according to the Mortgage Bankers Association's estimates. With everyone so unhappy, one might think there would be overwhelming pressure to do away with the GSEs through comprehensive housing finance reform. But that has not proven to be the case.