Not as if the government should need anotherreason to fix the housing market considering the devastation it has had on the banking system and broader economy, but the latest news from Reuters about Freddie Mac losing $23.9 billion in the fourth quarter on top of the $25.3 billion loss in the third quarter should be yet another wake up call that what is currently being done to address the housing market is not working.
Ordinarily these types of losses wouldn't be a big deal, but when the tax payer is on the hook for them, as they are ever since September 8th of 2008 when the government put Fannie and Freddie into conservatorship, it should catch your attention.
With all of the focus on making housing affordable and refinancing available to all, what has gotten lost in translation is that it is not just about affordability, home values do matter too. There are approximately 10 million homeowners that are under water. This number is likely to continue to rise over the next couple of years. The reason this is a problem is that being "under water" is a pre-condition for default. What it means is that homeowners can't sell even if they need to. The result is that despite all of Washington's efforts, foreclosures will continue to remain a systemic risk to the banking system and broader economy until we can stop home value declines by stimulating demand for real estate.
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