Mortgage Bankers Association Propose Dismantling of Freddie, Fannie
The Mortgage Bankers Association has proposed the replacement of Freddie Mac and Fannie Mae with a new organization that would provide a government guarantee.
As being not a fan of intrusive government, the idea to me stinks to high heaven. Sure it will reassure those buying the mortgage securities, but that is my money backing poorly written mortgages.
The excesses we saw in the past few years were a boon to lenders as the business it generated was substantial, but the cost to society was even bigger. Mortgages should be written to people who can pay them. There should be a dog in the fight for the borrower, meaning a down-payment that will make them take a painful loss.
But the idea that we start a new system for backing mortgages makes no sense unless the lending criteria is commensurate to the risk lenders take. Bundling has a terrific multiplier effect, but that will come back to bite us if we do not do the due diligence to ensure a proper market is created, not just a vehicle to write more mortgages.
The proposed framework, to be released Wednesday by the Mortgage Bankers Association, would give successor entities to Fannie and Freddie the authority to create securities backed by certain types of mortgages. The new companies would guarantee the securities against defaults on the underlying mortgages.
The new companies would also pay fees into a federal insurance fund, which would guarantee interest and principal payments to bondholders if the companies were unable to make them.
Such an insurance fund, designed to kick in only if the companies were to suffer catastrophic losses, would provide explicit federal backing. That would replace the current system, in which investors have long assumed that the government would stand behind Fannie and Freddie. via the WSJ
Edit Headline changed from Brokers to Bankers. Thanks for the heads up Rhonda Porter!
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Comment by M Realty on 2 September 2009:
These companies should be at least shaken up and made into smaller groups. There are not enough players in the market to keep corruption down and competition up. They also should have to abide by some sustainability rules to make sure that the executives are not draining the company of its future lifeblood and resources in order to get a quick bonus buck today.
-Tyler
Comment by Joel Carson on 2 September 2009:
This is a volatile issue and it boils down to power and control. I don’t know what the answer is and I’m not ready to declare my position as I’m still in the research process. I do, however, appreciate being able to read great blogs like this that help bring these issues to the forefront.
Comment by Gainesville Real Estate on 2 September 2009:
It will be more than a decade before this is completely resolved.
Comment by Brandon Green on 2 September 2009:
I’ve got to agree with Gainsville Real Estate–this situation won’t be addressed soon.
Comment by Lance Puig on 3 September 2009:
Though it looks very unlikely that this will get resolved soon, I am hoping for the best.
Pingback by Real Estate News: 9/3/09 « AccuriZ on 3 September 2009:
[...] Mortgage Brokers Association Propose Dismantling of Freddie, Fannie [...]
Comment by Rhonda Porter on 3 September 2009:
You might want to ammend the title of this post from “brokers” to “bankers”
Comment by Tom on 4 September 2009:
I agree that the exposure of the gov’t to bad or dubious loans needs to be mitigated, not increased. One thing people can do is use owner financing and there is an assortment of concepts to apply in order to buy or sell property.
Comment by Tom on 4 September 2009:
Can I add our site to the text?
http://www.ownercarryit.com has a ton of seller financed property. Free to list. Please take a look. Thanks.
Comment by Moshe Cohen on 5 September 2009:
The stock market does not think that they will disappear. Their stocks are cheap but overpriced. I suppose the market does not know how to deal with Government Owned entities.
Comment by BILL GARRISON on 19 September 2009:
Fannie and Freddie are part of the old world order that are left-overs from your parnets and grandparents days. Who is going to feel good about investing in them again with all of the new foreclosures on the horizon? How long is it going to wipe the slate clean? Where will the billions and trillions of new capital come from? The entire system need to be scraped and a new system without all the “fat” and political influence. I don’t think the mess will be fixed in my lifetime….. That’s my $000,000,000,000.02