According to the Wall Street Journal a U.S. Treasury report to congress recommends that Fannie Mae and Freddie Mac be phased out in the interest of mortgage market reform.
Under the Administration's proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government.
The $5 trillion question, however, is what would replace Fan and Fred. And here the Obama Administration has punted, offering the "pros and cons" of three broad proposals without endorsing any one of them.
Under the option favored at the Journal, federal mortgage guarantees would be offered only by the Federal Housing Administration for lower-income home buyers, veterans, and farm programs, and would affect only 10% to 15% of the mortgage market.
Option three strikes me as the one most likely to be popular at the White House.
But the greatest danger lies behind Door No. 3, which looks like Fannie in a new suit. Under this last option, the Administration envisages a group of tightly regulated, well-capitalized private mortgage insurers whose policies would be backstopped by government reinsurance. The government would charge premiums for this insurance, "which would be used to cover future claims and recoup losses to protect taxpayers." This reintroduces the lethal mix of private profit and public risk by other means.
Option three would also provide more opportunities for corruption and political payoffs. The Obama has been doling out taxpayer funds to friendly labor unions and favored industries from the moment he came into office. Look how many of those exemptions from the onerous health care reform regulations went to unions. The Obama administration seems to think that regulations are for helping friends and punishing enemies. One can hardly expect it to stop now.
What would replace Fred and Fan? (simplified for brevity)
How about a logging/masonry/carpentry/plumbing/electrician apprenticeship alternative available for "students" with no "knack" for high school "world humanities studies" or College "Socio-psychological challenges of women entering international bio-engineering", or like "marketable" skills.
Build your own house at a significantly lower "investment", simultaneously practice a profitable life trade
that actually serves the rest community in the bank "pool", AND earn the mantle of integrity in one's community?
How about "affordable/worker housing" loans remaining on actual paper, within the community where everybody with a stake in the "pool" can judge how the folks involved are utilizing their "cut" of local banks finite holdings?
How about the professionally helpless be "educated" that renting for life from (see above) is "more affordable", and more flexible, compared to a lot, a house, interest, insurance, HVAC, municipal services fees, property taxes, security system/services, replacement water heaters/furnaces, replacement roofs, all with no guarantee that ones "equity investment" (bwaa ha ha ha ha)MIGHT stand forever, and pay off some day in the Real Estate casino.
Sorry if I'm being Captain Obvious here.
Posted by: CaptDMO | February 14, 2011 at 11:59 AM
Obama is hiding so many things it's impossible to know all his dirty little secrets but in this particular case he's plainly hiding the fact that Fanny and Freddie contributed considerable sums of money to his campaign in which he returned the favor by giving each of these corrupt gigantic corporations billions and billions of taxpayer dollars to keep them from going out of business.
Posted by: Atlanta Roofing | February 16, 2011 at 10:10 PM
The phasing out of Fannie Mae and Freddie Mac will bring back private capital and banks to the real estate market and the playing field will be level for private capital investment. Borrowers will also be required to put down a larger down payment.
Posted by: Mortgages | June 28, 2011 at 02:23 PM