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Does new policy of unlimited financial assistance to Fannie Mae, Freddie Mac have tangible negative effects for real estate investors?

By
Services for Real Estate Pros with www.ALLRealtySolutions.com

While we were thinking of Christmas and New Years - at a time when most people aren’t paying attention to the news - the Obama administration announced that it would offer unlimited financial resources to Fannie Mae and Freddie Mac.  This money will be used to continue to bail out Fannie’s and Freddie’s current bad loans and enables them to continue to make lending decisions without regard to the safety of their capital.

Furthermore, this unlimited funding enables the federal government to continue to expand its position as the world’s largest mortgage lender.  (Try to find that in the Constitution!)

George Bush began the bailouts in his last year in office, and it was an astoundingly bad idea then.  Since then Barack Obama’s administration has made Bush’s stimulus look like a drop in the bucket.  Obama truly has thrown good money after bad.

Additionally, the Obama administration appears poised to double down on their push for mortgage modifications, with a heavy emphasis on principal reduction.  This will, no doubt, apply to Fannie and Freddie loans also.  Hmmm… unlimited funding for the government lenders plus pressure to forgive portions of the debt being loaned out equals another welfare program in disguise. This program stands in direct contrast to the rules of economics that have stood for thousands of years and will never change.

This is the height of short-term thinking.  Here’s how it plays out:

  • You pay high tax rates (which will be even higher after Obama’s health care plan becomes law)
  • Your money is given to Fannie & Freddie who lend it out without direct compensation to you
  • The Obama administration compensates Fannie & Freddie (and other lenders) to modify mortgages and reduce principal balances, thereby gifting YOUR money to those defaulted borrowers

Of course, the Obama apologists will suggest that it’s the government’s responsible to provide housing to the less fortunate.  But the truth of the matter is that artificially supporting a market always results in damage to that market in the long term, meaning more foreclosures and lower property values.

What do you think?  Is it a good idea for government to artificially prop up the housing market, or will doing so just make the ultimate crash of the real estate market even harder and worse?

Please leave your comments.  This is an important issue for real estate investors because if Obama is wrong - and he certainly is - this action will have the effect of prolonging the real estate crash and driving the United States further into debt with no tangible benefit for the country as a whole.

FULL STORY HERE!