During the last administration, sometime around 2003-04, the president wanted to reform the FMs (Freddie Mac and Fannie Mae), but Rep. Barney Frank said, “They are in good shape,” so nothing happened.
In the Sept. 5 edition of The Joplin Globe, there is an article detailing the history of these two quasi-governmental programs, and it is not pretty.
Created in 1938 after the Great Depression by FDR, they were run by the government to provide money for housing. Thirty years later, another president, Lyndon Johnson, along with his Democratic Congress, privatized the two FMs, in order to hide the deficit and insure a balanced budget in 1969. This started the downfall of these programs, and it only got worse.
In the ’90s, the programs were given more leeway in their transactions, which set in motion their eventual downfall. Bundling mortgages, and then selling them as securities to raise money, backed by the government, was a disaster waiting to happen, and it did. They also were allowed to raise the loan limits, sometimes lending 125 percent of the value, since they assumed property values would always go up. When the crunch came, Freddie and Fannie did not have the reserves to pay off the investors.
This left the government on the hook, and President Bush set up a $200 billion fund to shore up these two programs. President Obama has since doubled the fund to $400 billion, and the American taxpayer is gouged again. So far the government has spent between $160 to $200 billion to shore up, but no one seems to know the exact amount, and it will balloon as the commercial paper comes due in the next year. This will consume most of the remaining $200 billion dollars, and the government will have to shore up these programs again.
It is time to put the blame where it should have been put to begin with, and that is the government, and those in Congress, who are blind. One does not have to be an economist to know you cannot lend 125 percent on anything, especially something as volatile as the housing industry. Freddie and Fannie need to go back to basic loan structure, and Congress needs to support this effort, as that is the only way to make these programs solvent. A borrower must have a down payment, get a loan he can afford, and have a fairly stable work history. If Congress does any less, then Freddie and Fannie will be back in the taxpayers’ pocket for more money to bail them out.
Roy Winans
Joplin
Opinion
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