Sunday, July 11, 2010

Conservative Mob Mentality Over Fannie and Freddie Crazy and Wrong!!! Try Reading Something Just Once without screaming liberal bias.

Here's what the Journal Sentinel wrote Sunday about two Republican candidates misinformation campaign on the Bush Recession and finance reform:

Feingold's two GOP opponents, Dave Westlake and Ron Johnson, both have said they would vote no on the financial reforms. Both … said the bill fails to correct what they regard as a key factor in the financial crisis - problems with mortgage giants Fannie Mae and Freddie Mac.

Westlake said that when government exercises "an artificial influence" on the marketplace, "supply and demand can't find its natural equilibrium."

After reading the story below, you'll find that Westlake is dangerously clueless, and terribly wrong about the government exercising any "artificial influence" on the marketplace.

Westlake is essentially saying that Fannie and Freddie "caused" private lenders to go rogue and rip off the government. They couldn't control their free market tendencies to make a profit and leave someone else with the defaulting loans. What did you expect from hard working unaccountable private sector lenders feeding off the trough of socialized risk?
NOTE: Link to story below is missing, probably not pasted in before being saved. Help finding this would be appreciated.
In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.

The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.

"Unfortunately, Fannie Mae-quality, safe loans in the sub-prime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "

What happened was Fannie bought (backed) those risky loans from the private lenders, raising the risk level to the point of collapse.
From Fox News: Because the federal government took over Fannie and Freddie, that means the taxpayers own all those homes, and own or guarantee the mortgages for 31 million more.

How did this happen? During the Clinton years, the federal government set out to expand homeownership to low income people. Fannie and Freddie encouraged that by buying up mortgage loans from the original lenders.

Knowing they could dump their loans to Fannie and Freddie, lenders were perfectly willing to make shaky ones -- with no money down (or teaser rates) or no documentation of income, known as liar's loans.

That spread the practice of weaker loans and, some argue, laid the groundwork for the recent financial meltdown.

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