Fannie and Freddie are US government "deals" intended to make mortgage money more plentiful, to make house sales easier to do. (No mortgage, no sale) Real estate agents, builders, appliance makers, interior decorators, contractors, banks, mortgage insurers, and lawyers all approve of more cheap and easy mortgage money.
Trouble is, Fannie and Freddie caused Great Depression 2.0, then went bust, and are still being bailed out by US taxpayers to the tune of $142 billion. That's worse than AIG or the GM/Chrysler bailout. After doing all that damage, they ought to be closed down for good before they do anymore damage.
For four years the Obama administration has done nothing. They cannot make up their minds. They have offered three ideas for consideration.
1. Government backs off from mortgage lending to merely guaranteeing mortgages via FHA. The Obama folks worry about mortgage rates rising and big banks driving local banks out of the business.
This ain't all bad. It would be better if the government got out of the mortgage guarantee business too. Home mortgages are very sound and profitable deals, (safe as houses). They don't need a government guarantee.
2. Government creates a "backstop mechanism" to pump out mortgage money during bad times. How this would work is not specified.
Pretty vague, and they would declare bad times all the time, so the money pump would be on all the time.
3. The government could offer a guarantee on mortgage backed securities.
This is an awful idea. Mortgage backed securities are a scam on investors, because investors have no way of knowing if the mortgages doing the backing are any good or not. Great Depression 2.0 broke when investors wised up and stopped buying mortgage backed securities.
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