Are Fannie Mae and Freddie Mac the Focus?
January 4, 2011
Over the last quarter of 2010, the amount of editorial press given to Fannie Mae and Freddie Mac suggests that government needs to reform, reformulate or eliminate these two GSEs (government sponsored entities). The debate over how to correct the estimated $221 billion to $363 billion deficit that has accumulated over the past decade.
These entities were created to support the housing financial market. Their purpose was to purchase loans that originated in banks, savings and loans and mortgage companies. This strategy was to allow money to continue to be available for new loans. The process worked as long as borrowers made their mortgage payments and there were few defaulting homeowners. Once the value of property dropped below the amount of a mortgage, defaults snowballed and Fannie and Freddie also became insolvent.
This is an oversimplification of a truly serious problem. All the editorial writers seem to agree that reform is needed and soon. However, all admit that the solution will not be an easy one. Some call for privatization. Some call for the elimination of a government sponsored secondary mortgage market. Few explain how to pay for the deficit.
Along with all the other issues that the new congress must address, it will be interesting to see what priority will be given to an issue that is basic to the future of American home ownership.
(Just as an aside, the news this morning cited a buying back by Bank of America of some "bad loans" from Freddie and Fannie. )
Over the last quarter of 2010, the amount of editorial press given to Fannie Mae and Freddie Mac suggests that government needs to reform, reformulate or eliminate these two GSEs (government sponsored entities). The debate over how to correct the estimated $221 billion to $363 billion deficit that has accumulated over the past decade.
These entities were created to support the housing financial market. Their purpose was to purchase loans that originated in banks, savings and loans and mortgage companies. This strategy was to allow money to continue to be available for new loans. The process worked as long as borrowers made their mortgage payments and there were few defaulting homeowners. Once the value of property dropped below the amount of a mortgage, defaults snowballed and Fannie and Freddie also became insolvent.
This is an oversimplification of a truly serious problem. All the editorial writers seem to agree that reform is needed and soon. However, all admit that the solution will not be an easy one. Some call for privatization. Some call for the elimination of a government sponsored secondary mortgage market. Few explain how to pay for the deficit.
Along with all the other issues that the new congress must address, it will be interesting to see what priority will be given to an issue that is basic to the future of American home ownership.
(Just as an aside, the news this morning cited a buying back by Bank of America of some "bad loans" from Freddie and Fannie. )
posted by shirley harry at 8:35 AM
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