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Tuesday, October 25, 2016

Say we didn’t hear that. Say we didn’t hear that rules for mortgages guaranteed by the taxpayers are going lax once again.

Oh, but we did. For starters, the push is on to lower the minimum down payment required for Fannie Mae and Freddie Mac mortgages to only 3 percent.

During the housing bubble, Fannie and Freddie bought a lot of substandard mortgages. That’s why, when house prices cratered, so did they. The government had to bail them out to the tune of $188 billion. It makes little difference that the taxpayers were eventually paid back. Assuming the risk was not their job.

Taxpayers, you are being handed the bag once again. What makes you particularly vulnerable are the potent political forces determined to keep the game going — an odd alliance of Wall Street financiers and advocates for low-income Americans.

Fannie and Freddie are “government-sponsored enterprises.” They buy mortgages from lenders and package them into securities, which they then sell to investors. As long as these securities carry the government guarantee, investors need not lose sleep over the quality of the mortgages. Taxpayers should.

There have been attempts since the financial meltdown to dismantle Fannie and Freddie. But powerful banking interests have fought every move to transfer risks from the taxpayers’ shoulders to their own.

In response to an angry public, they said, “Rather than end the guarantees, let’s add safeguards to better protect taxpayers.” Some new rules were made. Now they’re being unmade.

The Federal Housing Finance Agency wants the minimum down payment required for a Fannie-backed mortgage, raised to 5 percent, lowered to 3 percent. The prudent rule is for at least 20 percent down.

So-called advocates joined the push for easier mortgage terms — and they should be ashamed, by the way. “Easy money” has been no friend to the poor.

Wall Street feasted during the real-estate orgy, preying on the unsophisticated with abusive fees and exploding interest rates. Folks of modest means — drawn into its web by no- and low-down-payment loans — lost their homes.

But before going on, let’s properly assign blame for the recent financial mess. It was not, as many on the right insist, programs forcing upstanding bankers to lend money to marginally qualified borrowers — read “minorities.”

By the late ’90s, half of subprime loans were made by mortgage companies not subject to the much-maligned Community Reinvestment Act. And in any case, the George W. Bush administration gutted the CRA regulations in 2004.

Low down payments often come with higher interest rates — and a requirement to also buy mortgage insurance. Far from being compelled to lend to poor people, Wall Street seeks them out as appealing targets. And when taxpayers assume the risk, it’s a no-lose proposition, is it not?

As for this passing on of risk from lenders to taxpayers, you don’t have to be a conservative to despise it. Barney Frank, the former Massachusetts rep who once headed the House Financial Services Committee, was appalled at the killing of another rule — one that made lenders assume at least 5 percent of the risk for less-than-supersafe mortgages that were rolled into securities.

Frank was extra pained to see advocates for the poor helping the banking and real estate interests pull this off.

In most of the free world, governments do not guarantee mortgages. Nonetheless, their people own homes. In this country, bankers and allied interests extract both lax rules and taxpayer guarantees.

And to think, Fannie and Freddie aren’t even out of conservatorship yet.

It’s time this story moved from the business pages to the front pages. Fannie and Freddie must go.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at [email protected] To find out more about Froma Harrop and read features by other Creators writers and cartoonists, visit the Creators Web page at

Photo via Wikimedia Commons

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  • tranz2deep

    American Government is a misnomer.
    Plutocratic Bullshit is the reality.

  • bobnstuff

    The problem is not government backed mortgages It’s government backed bad mortgages. The government backs loans all the time for business and insures crops . The problem is letting the banks set the rules. Bankers do not have good reputations for a reason.

    • Whittier5

      Agree. But, there were few “bad” mortgages. A former JPMC exec guesstimated only $30-45B. Failures of action and inaction by the W Admin and intransigent Congressional ‘Rs’ allowed that ‘minor’ problem explode into a multi-$Trillon problem as mass Un-Employment turned so many Mortgages into ‘bad’ mortgages.

      The Bankers’ reputation you mention is why we had the Glass-Steagall Banking Act in place from the Great Hoover Depression until 2000. If only Bill had listened to his mother and not to the false promises of ‘Rs’, and had not signed Gramm-Bliley-Leach Act of 1999 the Bank Collapse of 2008, Market Crash of 2008 and Great W Depression could never have occurred.

      It then only took Wall St, with help from ‘the City’ (UK’s Wall St), 8 years to destroy the World’s Economy.
      Our ancestors’ wisdom was well founded.

  • Whittier5

    One of the Many Tragedies of the Wall St Crash was the Democrats Fear to pin the Blame where in belonged – on Wall St Gambling. Instead they allowed the Repubs to pin the Blame on Freddie & Fannie, which truly were just more of the Victims.
    F&F had little, if anything, to do with the Housing Meltdown. There may have been some shenanigans trying to maximize Stockholder “Value”, but F&F were merely following their Congressional mandate – to repurchase qualifying mortgages from the original Lender.

    It was Big Banks & Brokerages and Rating Agencies that rigged the Mortgages, then the Big Banks & Brokerages doing increasingly more and more risky Bets with the Money they received from F&F, and bundling Mortgages they couldn’t get F&F to repurchase and selling them as Quality investments all over the World. The Rating Agencies .”certified” their “Quality”.

    Little of the problem was even the “quality” of the Mortgages, although there were a lot of unscrupulous ‘bird dogs’ enticing naive existing homeowners, often poor or elderly, into terrible Re-Fis.

    Root Cause Analysis was the ending of the Glass-Steagall Act, which Phil Gramm & Rs pushed on Bill in exchange for no Impeachment action. (See how much you can Trust Rs??) (Larry Summers stupidly approved of ending Glass-Steagall , too!!??) This was bad enough, but then W compounded the Danger by his continued “De-Regulation” and refusal to fill vacancies in the Banking oversight agencies. The Wild West ensued East of the Hudson.

    This mania’s Bubble began to burst when Big Builders ran out of new home buyers in mid-2007, and started laying-off crews en masse. Those crews’ loyalty had been secured by sweetheart deals on new homes. But, even those deals required some monthly payment. No Income combined with $4-5 gas caused by the Big Brokerage Crude Oil cartel, precluded payments. As the ripple effect of the burst spread from industry sector to sector, more and more people became ‘Incomeless’, therefore delinquent, and then ‘Homeless’.

    The Housing Mania began with the Reagan Tax Reform Act of 1986. When Individuals / Families lost their ability to deduct expenses for the Family Business, combined with Wage Stagnation, Families had to make up the difference from Home “Equity” loans. Loose Re-Fis were a lifeline.

    It all would have worked if the Unemployment Wave of 2007/08/09 could have been staunched in early 2008. But the W Admin was in Denial. Paulson refused to attach the strings to W’s Wall St Bail-out that Congress had required. Therefore, Homeowners never got the required protections from the Banks’ Folly.

    When Obama took over in 2009, the Repubs refused to admit the Failure of their policies or work with that ‘Tan-in-the-WH’. The Mania, like with werewolves and vampires, ran its course.

    Despite the Facts, these neo-Repubs & teawhacks refuse to believe the Facts, and are just sure there is more Profit to be extracted – somehow – by deep-sixing F & F. Again, refusing to accept the Fact that F & F are essential for regular Banks to be able to provide Home Loans and expand the Economy.