Obama Wants To Close Down Fannie & Freddie

Socialist President Obama has called for closing down Fannie and Freddie Mac, the two quasi governmental agencies that raise money to buy mortgages originated by various banks and mortgage companies.   It is true that Fannie and Freddie were stuck holding the bag, which was passed on to taxpayers, to the tune of about $187 Billion for many junk loans that were funded by mortgage companies.  But, what Obama is not saying is that it was government intervention that resulted in all the bad loans in the first place. 

Socialists have a real problem with history and facts.  It was Socialists in Congress, when Clinton was President, that demanded that banks and mortgage companies make loans to people, many of whom were minorities, who could not repay them.   At first, lenders objected; but after being threatened with regulations and legal action for "red lining", borrowers with bad credit, many of them Obama's PEEP's, were given loans.   To do so, mortgage companies had to dramatically loosen standards and create various adjustable interest rate mortgage instruments that would allow borrowers, with bad credit, the ability to make payments.   This all worked until mortgage interest rates adjusted higher making the payments go up.   It was then that many could not afford the homes they had purchased, which led to millions of foreclosures and a drop in home values.  This is what caused the death spiral and the financial crisis in 2008-09 that resulted in the Great Recession, really Depression. 

Obviously, when house prices fell, many people, especially with bad credit, found themselves upside down on their mortgages, owing more than the home was worth.   Once that happened, many of these borrowers walked away as homes ended up in foreclosure making the Recession that hit in 2008-09 and financial crisis much worse.   These bad loans were combined with other loans and sold to investors by Fannie and Freddie when it all fell apart.  Fannie and Freddie did not cause the bad loans, they only bought them in good faith.   They were just doing the government's bidding. 

But let's be clear, though greed often sets in a Capitalist Society,  Socialists in Congress are at the root of this evil.  Now, Socialist President Obama wants to get rid of Fannie and Freddie, which are the basis for the 30 year Fixed Rate Loan and have banks directly take the risk on these mortgages.  If Fannie and Freddie disappear, the likelihood is that with them will go the 30 year Fixed Rate Mortgage and the American dream of home ownership.  Of course, since Socialist President Obama does not have a clue about the real world, he does not understand how basic economics works.  

Banks will not put their own money at risk for 30 years unless they can get substantially higher interest rates.   What we might see instead is a 30 year amortization mortgage with a 10 year call, or balloon payment.  This would subject the borrower to the uncertainty of the interest rates, that could be higher, or lower 10 years out.  So in essence, Fixed Rate loans in the United States, preferred by most borrowers, will probably go away without Fannie and Freddie, which is the case in Europe.   And, Obama wants the banks to loan to people with low credit ratings, his PEEP's.   Here we go again.  That is what caused the financial mess in the first place. 

Today, it is much harder to get a loan and that is a good thing.   People with bad credit, many of them Obama's PEEP's, are not being given loans and that is OK.   People with bad credit need to get their lives in order before taking on the burden of a long term mortgage.   It is time for common sense to prevail; not more Socialist Schemes that are likely to repeat history.