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Freddie Mac and Fannie Mae To Be Shut Down?

Today the Obama administration outlined 3 different scenario’s that would shut down Freddie Mac and Fannie Mae as the backstops of the mortgage markets.

All of the administration’s proposals envision a scaled-back role for the government, and officials emphasized the goal of restoring the market for mortgage-backed securities issued without the government’s guarantee.

… One option proposed by the administration includes a new government backstop of certain mortgages under a federal ‘reinsurance’ model, while another would proposes a more limited backstop that would scale up primarily during times of economic crisis. The third option proposes no such government backstop beyond existing federal agencies such as the Federal Housing Administration. via the WSJ

The one unifying factor of all these plans is that interest rates would rise and the banking system would be expected to play a much bigger role in the housing industry. 

That is not all bad. Sure it will be a shock to the system, but the federalization of the housing market is not a great thing for the industry. Instead, the ability of housing market and the banking sector to find it’s  equilibrium is the most important factor in a healthy real estate marketplace.

And never forget, banks need to make their money. So loans will be harder to get and they will be more expensive, but they also will not be subsidized by your tax money.

Read the full report here.

8 comments

  1. I'm not really sure how I feel about this one. I'm on the fence. I guess my inhibition is coming from a fear of private industry gambling too much with unregulated derivatives, etc. I understand they are trying to create a regulatory agency for such products, but that agency is being created under the advice and management of those who perpetrated our recent economic downfall. With no Fannie and Freddie I see a RE world where private lenders stop the flow of loans to lower middle class Americans while taking large risks in the secondary market, knowing full well in the back of their minds that because they are "too big to fail" those same middle class families they won't lend to will be forced to bail them out WHEN they cause another world-wide catastrophe….hence more corporate wellfare, aka trickle up economics.

    My biggest issue is that Fannie and Freddie weren't really the bad guys leading into the '08 meltdown. Sure they played a part, but you can largely thank Countrywide for Fannie and Freddie's negligence. Personally I think we would be better off creating strong secondary market laws and regulations including the ban of any credit default swaps or derivatives, and to require federal approval of any new loan programs or secondary market schemes before they are implemented. We've seen what unregulated lending and secondary market activity can and will do to our economy so why are we considering making it worse?? Taking Fannie and Freddie away will only lead to a greater inequality gap which is already among the worst in the modernized world, because lenders/banks won't feel any pressure to lend to less than highly capitalized investors. Barack Obama is not the progressive we elected and I am ashamed at his movement towards ever increasing far-right, corporatist principles….all while the right calls him a marxist, socialist, kenyan born, commie nazi. This country is starting to frighten me…

  2. I wonder if it will really go through?

  3. I agree with Jason's comment here, some of these new changes are hard to stomach and beginning to frighten me as well. Being a realtor this will definitely affect me. I will be following this closely.

  4. "The one unifying factor of all these plans is that interest rates would rise and the banking system would be expected to play a much bigger role in the housing industry. "

    Havent the bank "helped" us enough??

  5. ? Violation of Realtor Code of Ethics?

    Need you expert opinions:

    The following occurred on last Thursday afternoon in the State of Florida.

    My prospect wanted to submit a contract on two houses. Both houses were listed by the same firm; one by the firm's broker and the other by one of his Realtors. The broker's listing had a contract that had not been accepted by the lender as a short sale. The broker said he would have an answer on Monday.

    I conveyed to a listing Realtor that my prospect was going to submit a contract on their listing if the house listed by the broker's contract was accepted by the lender. The Realtor texted me Friday morning that he appreciated my info and "I hope we will be able to put a deal together. Let me know if you need anything at all."

    On Monday around 10 AM I received a call from the broker and he stated the contract had been accepted by the lender and stated that he believed an offer was being made on his Realtor's listing, the house my prospect said they would submit a contract.

    At 2:45 Pm the Realtor texted me and said he had an offer on his listing. I called him and asked if he could wait till Tuesday and present my prospect's contract and the contract he had in his possession. He said he had an obligation to present the contract he had in his possession that afternoon. At 4:40 PM he texted me and said the seller had accepted the contract he had in his possession.

    Yesterday, I found out that the Realtor's contract was submitted by his broker, the same broker who said earlier that day that he believed an offer was being made on his Realtor's listing, the house my prospect said they would submit a contract. .Also, the broker's buyer had a deadline for an acceptance by 10 PM Monday night (only 7 hours and 15 minutes after the Realtor informed me he had a contract).

    If I was informed of this deadline I would have submitted their contract before the 10 PM deadline.

    My opinion:

    As a broker/Realtor in the above situation I would have been honest and informed another Realtor that they had until 10 PM to submit their prospect's contract.

    What is your opinion? Do you believe that the above situation violates any of the Realtor's Code of Ethics? Do you believe that the Realtor and his broker need to present my prospect contract and let the Seller decide? My prospect is considering hiring an attorney to get an injunction to stop the closing?

    Thank you,

  6. Search Phoenix Arizona Homes

    it sounds like a step in right direction. A lot of controvery and finger pointing but i believe the polical mismanagement has contributed to our current housing mess

  7. At least their admitting the big bailout did absolutely nothing for teh housing crisis. I know here in Vegas the banks are still holding onto foreclosures and homes are still being foreclosed on. Las Vegas has yet to see its worst. At least the government is brainstorming on new options.

  8. The government shouldn't be in the mortgage business, and they definitely shouldn't be backstopping mortgages where only 3.5% down payment was required. In fact, if it wasn't for these programs, nobody would loan with 3.5% down which had a big role in the housing bubble that took decades to balloon. There are so many things wrong with the government being in the mortgage market, but the one big one that is undisputable and by itself should take any role beyond regulation off the table is..(drum roll)…

    taxpayer money should not be used to bail out a bunch of idiots, whether it is the American citizen who bought a house they couldn't afford, or a sleezy banker who capitalized on the MBS market knowing it would bust at the expense of the entire world economy. I pay my mortgages, always have, and I don't get a special interest rate like my friend who was behind.

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