Wednesday, August 18, 2010

Barney Frank wants to replace Fannie and Freddie

This off the Fox News crawl. I'm agin it. Frannie Mae and Freddie Mac are largely responsible for causing Great Depression 2.0. They should be disbanded, and their management prosecuted.
Barney claims the new organization would subsidize the housing market. I say we should stop subsidies to housing. Housing doesn't need subsidy, other wise known as giving taxpayer money to builders, realtors, home owners, and banks.
Home mortgages are attractive investments just as they are. The loan is secured by real property which the lender can seize if the borrow doesn't make his payments. The collateral is fixed and immobile, the lender cannot drive it out of state. The borrower is highly motivated to keep up the payments, if only to avoid harsh criticism by his spouse when the the couple is evicted.
If the lender makes a realistic appraisal of the property value, and insists that the borrower put up 10 or 20 percent of the value in cash, and the borrower isn't spending more than 25% of his income on payments, the loan is highly likely to get repaid. They used to say "safe as houses" to describe a secure investment. Banks can do very well loaning on mortgages at 6 percent and paying depositors 3 percent, keeping the spread between loan rates and depositors interest rates.
Home mortgages used to work that way. First house I ever bought, back in the '70s the bank loan officer interviewed me and the wife, and then went to the property and appraised it himself. No mortgage broker and the bank loaned its own money, not Fannie's, and held the note til we sold the house.

No comments: