Fannie Mae and Freddie Mac To Loosen Lending Guidelines in a Bid to Boost the Housing Market.
The Obama Administration and federal regulators are concerned that the housing “recovery” is in jeopardy. As we noted last month the housing recovery that never was, is over. Existing home sales are falling as are mortgage applications, home ownership rates and new home construction.
Now the government is going to try and boost the housing market’s flailing fortunes by reversing the tightened lending standards imposed on Fannie Mae and Freddie Mac after the housing bubble of the mid and late 2000’s burst. Fannie and Freddie had gone bust in late 2008 and required a government bailout and take over, due in part to lax lending standards that caused massive losses at the two formerly government sponsored entities. As part of the government takeover new stricter lending requirements were imposed on the two lending giants.
-looser credit standards;
-abandoning a proposal that would require larger down payments;
-abandoning a proposal that would limit the size of mortgages that Fannie and Freddie would back; and
-abandoning the practice of requiring lenders to repurchase mortgages when the borrower misses two mortgage payments in the first three years.
The foregoing proposals will put Fannie Mae and Freddie Mac in a precarious financial position and increase the likelihood that the two entities will face another bust as they try to jump start the housing market by loosening lending standards.
New Federal Housing Finance Agency Director Mel Watt, the regulator who oversees Freddie and Fannie, said “Housing finance is such a critical part of the economy to stop, or stand in place, is just not an option.”
Better to risk bankruptcy and tax payer funded losses than to not try to create another housing bubble!
Federal policy makers have yet to learn that an economy should not be driven by people moving in and out of used houses but rather the health of an economy should reflect the ability of people to do so. The new Fannie and Freddie lending guidelines may get more unqualified borrowers into houses, but will do nothing to improve the economy.
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