Replies to post #481749 on Zeev's Turnips Talk Politics (ZTTP)

[n4807g]

Yeah...but they won't include them, politics. They fix absolutely nothing.

[BullNBear52]

Fannie Mae and Freddie Mac buy mortgages from lenders and package them into bonds that are resold to global investors. When the housing bubble burst, the government had to step in and take them over.

Shelby and fellow Republican Sens. John McCain of Arizona and Judd Gregg of New Hampshire have proposed an amendment to the legislation that would require the government to give up control of Fannie and Freddie within two years and then take steps to get out of the business of mortgage finance. It would also repeal the companies' mandates to promote affordable housing.

That would be like throwing the baby out with the bath water. The mistake was everyone should be a home owner, ie affordable housing. The problem was the underwriters weren't doing their job. Goldman Sachs proved that by packaging junk subprime mortgages, selling them then betting they would fail.

Fannie and Freddie do serve a purpose by freeing up liquidity at the banks. If the banks carried every loan they issued they would soon run out of cash to lend. The problem is mortgage lenders were stiffing Fannie and Freddie with crap. Not everyone should have been given a mortgage.

What I would like to see is similiar to my own situation when we bought our house in 1992. Wells Fargo did the loan with FHA insurance. We put 5% down and FHA insured the loan until we had 20% equity at which point the $37 a month I was paying went away. It was also a 2-1 buydown. The loan was at 7.75% but bought down to 5.75% for the first year then 6.75% the second year and locked in at the fixed rate of 7.75%. That is an affordable housing loan. Only one of us was working at the time and we figured the economy would improve in 3 years. WF never sold the loan. However with that type of loan it would hardly be classified as subprime. We qualified and the loan was insured. And WF could have sold it to F&F and they still would have had the FHA insurance.

The ulitmate question is should the govt be in the lending business. Given the above it works and keeps liquidity in the credit markets. Where everything went screwy was allowing CDS into the picture. Then the bank says who cares what I write. I've hedged against it. See AIG.

Shelby doesn't understand the need for F&F in today's markets. They both worked for years and were started around the same time as the Vietnam War. The GI Bill has always allowed for returning vets to buy a house which I'm sure ended up in F&F's portfolio.

The products today are simply garbage. We really don't need a comsumer protection agency. We need the Fed and Congress to outlaw some of the loan products today. Interest only home loans with ballons don't cut it. Neither do the payday lenders.