Before you hear from me here’s part of an op-ed by Bill Anderson, an economics professor, who does a nice job of explaining clearly and concisely a great deal about Fannie and Freddie. I add some thoughts below the star line
Bill explains - - -
… First, what are "Fannie Mae" and "Freddie Mac"? They are entities created by the federal government to make mortgage loans and to guarantee those loans.
"Fannie Mae" is an acronym for the Federal National Mortgage Association, which was created by the Franklin Roosevelt administration in 1938 to help further home ownership.
"Freddie Mac" is the Federal Home Loan Mortgage Corporation, created by the Nixon administration in 1970 as a "competitor" for the FNMA.
Both entities ultimately were "privatized," but nonetheless have operated with the obviously implicit guarantee from the federal government that it would protect them against losses.
In a free market, there would be nothing like these entities, or if something like them existed, there would be no guarantee that losses would be covered by taxpayers, which has created an obvious moral hazard. They exist because the government decided to follow a policy during the Great Depression to encourage home ownership beyond free market levels, which also meant that the entities that would have to finance such endeavors would have to come from the government. …
Here’s Bill’s entire op-ed, “Fannie, Freddie, and a Primer in Finance.”
First, if you’re asking if this Bill Anderson is the same one who very early in the Duke case called “frame-up” on Nifong and has since written extensively and passionately demanding justice and public disclosure in the case, the answer is “Yes.”
Hats off to Bill for all he’s done on the case.
If you read Bill’s op-ed you’ll see he’s a free-market advocate who believes our government’s encouragement of home ownership by guaranteeing mortgages has been an ill-informed intrusion in the market that’s predictably led to the problems we face today.
At least that’s how I read Bill.
If I’m reading him correctly, I don’t agree with Bill if you use 1930 as a start line and today as the end line.
Over those years, we’ve had the greatest housing boom in history.
Government-backed mortgages have been a very important reason for that boom.
So has a federal tax policy that allows homeowners in almost all cases to deduct from the calculation of their taxable income the interest cost on their home mortgages. Renters can’t deduct their rent costs.
Until recently more than 98% of federally insured home mortgages were satisfactorily serviced.
Even today, more than 95% of home mortgages are being paid on time.
Sen. McCain says he wants to help the 5% or so who can’t (don’t/won’t?) pay their mortgages.
I wouldn’t object to that at all if McCain would use his own money.
But he wants to use ours.
One of the worst things the government can do to make the current mortgage market worse is to bail out mortgage-delinquent homeowners.
That will tell the markets there’s no discipline for Americans when they become mortgagors.
There are other much better ways to help homeowners in trouble as well as the rest of us.
McCain should be pushing hard for government actions that will bring down the cost of energy.
Bring the cost of a gallon of gas down $1.00 and you’ve put $60.00 a month in the pocket of a mortgagor who fills a 15-gallon tank 4 times a month.
The mortgagor’s energy bill will come down as well.
Most banks and other mortgagees are reluctant to foreclose and evict for many reasons, including not wanting to be left with a house vacant and therefore at greater risk of vandalism, etc.
So they’re willing to try to work things out with good-faith mortgagors having temporary financial problems.
There’s more I want to say but I’m out of time now.
I’ll be back on this theme tomorrow.
Hint: I’ll be talking about what “charities” can do and somethings we used to call “credit unions.”
What are your thoughts?