A recent report commissioned by Freddy Mac clearly shows the priorities of these pseudo-governmental organizations, their democrat lead boards and the politicians that regulate and control them.  The report goes into the details of the “social benefits” which are provided including the dissemination through which they “increased the rate of home ownership, particularly for minorities and underserved populations.”  They fail to mention in this report the reason that these populations are “under-served” or by what measure they determine the proper level of service.  In the report commissioned by Freddy Mac in 2006 the writers hail Freddy and Fanny as promoting home ownership through “reduction in homeowners’ financing costs and to increased stability in the economy.” Things are very stable right now Freddy, thank you for your work.

    In fact the reason this population is “under-served” is because they don’t have enough money to actually pay for these houses.  This seems to clearly sum up the intent of Freddy and Fanny when deciding which loans to back:

 “The Impacts of Affordable Lending Efforts on Home ownership Rates” (2003). Professors Quercia, McCarthy, and Wachter develop a methodology to analyze the effect of affordable lending activities, such as flexible underwriting standards and lower required down payments, on home ownership rates by geographic region and targeted population. Using the American Housing Survey, they show that financially innovative products from the GSEs— many of which are financed by the retained portfolio —have been responsible for increasing the home ownership rate for minorities by as much as five percent.

Freddy Mac and Fanny Mae have provided funding for “financially innovative products” to increase home ownership for minorities by five percent.  I am all in favor of minorities owning homes but we should not encourage them to buy homes they cannot afford!  Freddy and Fanny control this market.  Various sources that I have viewed show an increasing market control held by Freddy and Fanny in the secondary mortgage market with some sources showing over 70% dominance.  With the clear biases of Freddy and Fanny to purchase loans made to these “under-served” individuals and families that the normal market would not loan to, or at least would not loan to with such lax conditions and rates, it should come as little surprise that bad mortgages have proliferated.  Due to pressure from democrats mixed with their control of the board for these companies there has been a strong market pressure for banks to loan money to those with poorer credit.  Since Freddy and Fanny where willing to buy these in the secondary market it was easy for banks to make these loans and then recapitalize by selling them to these GSEs.  On the contrary this behavior discouraged banks from making loans to better risk people because not only is there an added cost in getting good credit risks to choose your bank but because of the added difficulty of having to find a different secondary market since these where not as sought after by Fanny and Freddy who want to recapitalize banks serving “under-served” sectors.  In short it is the government funded attempt at social engineering that altering the free market and created this problem and not greedy banks on Wall Street.  The banks behavior was shaped by government and without that government interference these loans never would have been issued, housing prices would have been more in line with long run averages and this bubble and its subsequent and disastrous collapse would never have occurred.  All of this would have been avoided had the democrats in congress not forced their politics and social engineering.  No amount of regulation would have solved this problem on free markets!

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    Ludwig von Mises: 'Used to the conditions of a capitalistic environment, the average American takes it for granted that every year business makes something new and better accessible to him. Looking backward upon the years of his own life, he realizes that many implements that were totally unknown in the days of his youth and many others which at that time could be enjoyed only by a small minority are now standard equipment of almost every household. He is fully confident that this trend will prevail also in the future. He simply calls it the American way of life and does not give serious thought to the question of what made this continuous improvement in the supply of material goods possible.' - Economic Freedom and Interventionism
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