William Poole on Fannie & Freddie: Let Them Wither Away

michaelblomquist at 13:41 2008-07-27 said:

"In fact, there has already been a test case for how the mortgage market would function without Fannie and Freddie. After an accounting scandal in 2005, regulators severely constrained their activities. The nation’s total residential mortgage debt outstanding rose by $1.176 trillion in that year, even though Fannie’s and Freddie’s stakes rose by only $169 billion, just 14.4 percent of the total. In essence, the market barely noticed that the two agencies’ private competitors were providing 85 percent of the increase in mortgage debt in 2005."

As Fannie and Freddie were dealing with their "accounting scandals" from subsidizing low rates to millions of borrowers; Wall Street, Banks and S&Ls were happy to make up the difference ($1+TRILLION).

Despite decades of proven risk models and repurchase agreements the "too big to fail" depositories dramatically changed their lending guidelines.

In the BIG bubble markets Fannie and Freddie's loan limits ($417k) and more strict guidelines could not keep the Ponzi scheme alive. Homebuyers were not staying afloat on incomes alone. The OTS, OCC, FDIC, SEC, FED, etc all dropped the ball. Anyone who has been in the business for 2 weeks or capable of operating a calculator knew that lending practices were anything but safe and sound.

I understand that need for the bail out, but just as important as the bail out is law and order; where are the convictions and disgorgement?

In addition to loan fraud of biblical proportions the criminals behind this crisis have destroyed millions of lives, possibly our entire economy and or currency.

This BS should not be tolerated.

The lenders who began picking up the slack: CFC, WAMU, World/Wachovia, Wells, Citi, etc. were more than happy to "innovate" by attempting to shift liability from themselves to borrowers and originators by promoting "liar loan" guidelines.

Hint: It really wasn't innovation or laxed lending guidelines it was and still is fraud.

Now everyone on Capital Hill and others are screaming for bail outs where do we stop?

If we are going to debase our currency; it is only fair that everyone get a piece of the action. We should average the $ amount of lender's executive compensation, loan mods for loan fraud and then give all other households not fitting into either of these categories a cash settlement towards future taxes and inflation.

Doesn't anyone remember the "Stimulus Act"? $600 or another bail out that set up the current Fannie/Freddie bailout (loan amounts up to $729,750) Does that appear pre-meditated? CFCs switch to the OTS from the OCC appx 1 year before BofAs purchase announcment?

How much has Fannie and Freddie's portfolio grown since this law was enacted in 2007? Permalink