It’s hard to imagine now, but it wasn’t all that long ago when it could be hard to find average folks who knew or cared that much about Fannie Mae and Freddie
“„The Obama administration is considering an overhaul of Fannie Maeand Freddie Macthat would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.
“„The bad debts the firms own would be placed in new government-backed financial institutions — so-called bad banks — that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.
“„The moves would represent one of the most dramatic reorderings of the badly shattered housing finance system since District-based Fannie Mae was created by Congress to support mortgage lending during the Great Depression. Both Fannie Mae and Freddie Mac, based in McLean, have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers.
“„This is a terrible idea.
“„It’s not that it’s a bailout, as these schemes typically are. That ship is already sailed. We already know we’re going to guarantee every last dollar of their debt.
“„No, the problem is that we’ll be creating two new, reinvigorated GSE, with AAA balance sheets and government guarantees to match. This means they’ll be able to create havoc in the housing market all over again. Maybe they’ll start modestly, with strict guidelines or whatnot — but then, since so much of the turnaround plan revolves around bad lending practices (document-light lending, high LTV ratios, etc.) they very well may go straight back to their old ways. Certainly, the political pressure will be on them to prop up as much of the market as they can handle.
“„We’ve already bailed them out. Is it too much to ask that they slink quietly off into the night?