What To Do About Fannie Mae, Freddie Mac

Republicans and Democrats are squabbling about what to do with Fannie and Freddie.

Republicans want to wind them down quicker. Democrats want a big government role in the mortgage market.

Fannie and Freddie don’t want to write down loan principal and this is interfering with various government plans to reduce mortgage foreclosures by subsidizing lenders who write down mortgage principle.

This is ironic because Fannie and Freddie exist to subsidize the mortgage market. They are an arm of the government. But when the government controls much of the economy, then various branches of the government work at cross purposes.

The New York Times reports:

A major obstacle has been that the two largest mortgage guarantors, Fannie Mae and Freddie Mac, will not participate. No loans are eligible if they were bought and held or securitized by the two companies, which are now under government control and guarantee more than 70 percent of the country’s home loans.

“It is extremely difficult for the principal reduction program to be successful” when Fannie and Freddie opt out, said Shaun Rieve, a spokesman for the Arizona Department of Housing.

The companies’ policy against debt forgiveness, or principal reduction, has blocked widespread use of what many have come to believe is an indispensable tool for fixing the housing problem. The state attorneys general have been insisting that debt forgiveness be a part of the multibillion-dollar settlement they are negotiating with big banks over faulty mortgage practices.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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