How Freddie and Fannie Are Held Captive
nytimes.com
nytimes.com
There's also a reluctance of the political parties to scale them back due to the repercussions it would have on home buyers. Who wants to be known as the candidate that stopped X from buying a home?
Which I don't understand, because mobility is more important in the current economic jobs climate. With cheap mortgage money, you're subsidizing people handicapping their ability to earn an income if their job evaporates.
The federal government needs to incentivize remote work through tax policy if it continues encouraging homeownership (which I agree is good from a societal perspective), or remove all support from the residential real estate market and allow the free market to be free (ie remove the subsidized benefits of buying vs renting, let landlords absorb the risk of large capital outlays for housing units).
I do! There's a whole host of additional reasons that I'm not a viable candidate though.
This is a way to pass free money to everyday homebuyers.
In this market with cheap debt, there's a large number of HENRY's (High Earner, Not Rich Yet) who can afford the mortgage payments, but are perhaps too young to have had a chance to have saved up the necessary downpayment without help from families and such.
Where X is people who won't go into a ridiculous amount of debt for a house, they've already done it.
Since inception they've benefitted from lower capital and mortgage insurance costs due to their implicit government backing. In return, they've accepted substantial oversight from the government in regards to their loan acceptance standards.
The 2008 rescue and then QE where the Fed bought Agency debt by the billions made the implicit government guarantee very, very real.
When Fannie and Feddie went insolvent, Congress and the Obama administration as the rescuers had the opportunity to completely wipe out the public shareholders and take over the companies. This is what should have been done.
Instead, we now have zombie public companies whose profits are siphoned off through political agreements instead of explicit contracts open to public scrutiny.
If Congress wants the public benefit, then Congress and the White House should have wiped out the public shareholders in 2008 and taken over the companies.
What they should do is auction off the assets, pay off their creditors and let the banks, credit unions and other organizations manage the risk.
There's plenty of competition in the lending business.
Make a loan, collect the fee, dump the junk on the tax payer.
Government enabled and subsidized this. And still does. Home loan deductions, anybody?
We didn't have to "bail them out". We should have let them go chapter 11. Plenty of folks with responsible finances could have bought up the assets.
Admittedly they may not be the same shareholders, but let's not forget that Fannie/Freddie shareholders have benefited untold billions pre-crisis by being able to fund for years with an implicit government guarantee that was never paid for.
http://www.federalreserve.gov/pubs/feds/2005/200505/200505pa...
The article says precisely the opposite:
> But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to keep all the companies’ profits for the government. That move effectively maintained Fannie’s and Freddie’s status as wards of the state.
And nothing has changed. Just because the government didn't explicitly take away their shares doesn't mean they are suddenly entitled to the profits that the public investment in their companies has reaped.