A conservative friend recently sent me a link to the video above. I think it is well edited to make a point: Republicans wanted to reign in Fannie and Freddie and other GSE’s.
F&F have “played an integral part in the development of the most successful mortgage market in the world which has allowed U.S. citizens to benefit from one of the highest home ownership percentages in the world.”
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Fannie and Freddie (F&F) were created to encourage home ownership. Historically folks of color and poor people have had a very difficult time owning the homes they occupy. F&F were tasked with making that easier.
Once these special new ways of lending started taking hold (sub-prime mortgages, et al), F&F were not keeping up WITH THE OTHER lending institutions. Congress saw this as a failure of their secondary directive – to make money. (The theory went: the more money they make, the more money they can lend.)
Congress then passed laws making it legal for F&F to buy up these new “products”. (Note: F&F have historically been more conservative in the loans they purchase and there has been a constant push, primarily by Democrats, to free them up to allow more risky activity.) When these new products were shown to make the other lending institutions profitable (with little risk), Congress had strong enough argument to allow F&F to get into the increasingly risky but highly profitable business.
Let’s be clear here: F&F were at fault for showing poor judgement. They never should have been able to purchase the loans they did. They are participants in half of all home loans in the USA and it is amazing to me that anyone with that breadth should be as lax as they were allowed to be.
BUT!!! F&F were FOLLOWING the other lending institutions. They were trying to get folks into homes AND make money doing it. The fallout of this madness is just beginning. Wachovia just lost $23 Billion – in one quarter!!! And they are projecting more next quarter. We have seen very little of the pain so far.
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I will end by saying I agree with the goals of F&F. Lending in this country has historically been extremely discriminatory and unfair. F&F were designed to help change racist/classist policies. I am sad that they took on a second goal of making a profit as I believe it is in our country’s best interest to get as many people owning homes as can afford them.
In the past, even if you could afford it, most institutions would not lend to you if you did not fit a racial/class profile. I think this is another classic example of how many poor Republicans vote against their own interest. Sure F&F sounds good to rag on… but without F&F, many folk who now own homes (and pay their mortgage) would not be in them now.