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Freddie and Fannie: It's Time For Fat Cats To Go

By
Real Estate Agent with Keller Williams Realty Southern Arizona (Sierra Vista)

Image of a Fat Cat

                                                         Freddie & Fanny Fat Cats: Put 'Em On A Diet!
 
Let's face it: The U.S. housing market is a mess. Did our housing "boom" and "bust" happen all by itself? Of course not.

Well-intentioned policies, like the Community Reinvestment Act, from the late '70s, started forcing lenders to provide loans to potential home buyers, with reduced underwriting standards. Over the next 25 years, Fannie Mae and Freddie Mac relentlessly shoved mortgage monies at borrowers, at reduced rates, and with lax qualification standards. As more buyers entered the market, and they could qualify for higher amounts, housing prices moved up... and up.

Lenders were forced to make loans to anyone who could "fog" a mirror. "Sub-prime" mortgages, "No documentation" mortgages, instant credit "rescoring," and other tactics were used to "churn" the mortgage industry, creating millions of irrational loans.

Sellers rode the wave, reaping higher and higher "appreciation" on their investment. Buyers were unafraid to buy a home... promised that the value would go up perpetually. A few mortgage crooks made the problem worse, but the main culprit was our government, acting through the quasi-government inventions: Fannie and Freddie. Ignoring the laws of unintended consequences, they pumped billions and billions of our dollars into the housing market.

Agents loved it. Lenders loved it. Buyers loved it. Sellers loved it. But then, the bubble burst. Now, in many parts of the country, you can't give homes away. Short sales abound, and REOs are plentiful. Lenders still have a huge "shadow" inventory of foreclosures that they are reluctant to dump on the market all at once.

The bubble burst when it was discovered that mortgage-backed securities were virtually worthless, "polluted" by non-performing loans... on over-valued homes.

Where do we go from here?

Hopefully, Fannie and Freddie will be dismantled, broken up into smaller, more rational components, who make good decisions regarding the secondary mortgage market.

Fannie and Freddie helped millions of deserving buyers to achieve their dreams, but they grew too large, too powerful, and too unaccountable. They became classic "Fat-Cats."

It's time to put 'em on a diet.

Comments (1)

Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Colorado Broker / Referral Services

Good posting, Mike!  Yes, FNMA and FreddieMac need to go as we know them, today.  After, a few bail-outs, they should have been forced to go as private companies and either sink or swim to exist.  Remove them from ANY Congressional contact... speaking of Fat Cats!!

Dec 11, 2011 03:04 AM