Kling on Freddie and Fannie

Muirgeo,

Do you why inflation hit its peak in 1980 during the reign of Carter? WHy not during Johnson administration, who set things in motion for the great inflation?

because Fannie and Freddie used to only buy 20% down, 30 year fixed rate mortgages. Some of these mortgages were repacked into MBSs and some were kept on its own books. Around 2006 it began to participate in the loose lending standards which became common in the private lending industry. It began buying zero down arms and Alt-A (i.e. "liar" loans – loans for which the income of the borrower is not verified). In other words, Fan and Fred jacked up the risk of their mortgage portfolios.

They were able to do this because the regulator was always unable to oversee either company. With a government guarantee but no oversight, the companies rolled the dice.

BTW, this is a long time coming. Even with its previously conservative standards, Fan and Fred were always pushing the limits of accounting standards to increase the risk in their portfolio so that they could increase returns for their shareholders while shoving the risk onto taxpayers. This is the problem with GSEs.

I just had an image of folks like you asking the same question about Social Security and Medicare a few years down the road when they reach their crisis point.

Oh, let's get real, Randy. People like Muirpid are only asking so that he can assert that you're wrong even if they're too incompetent to understand so much as what they're asking. They will not be asking what went wrong – they'll tell you that it's the fault of some lobbiest and that we must increase fascism to prevent it in the future. Because that has always worked so well in fascist countries.

Honestly I don't know what to make of this. I'm paying a fixed-rate mortgage. How will this affect me?

Muirpid,

How can you ask "why now?" in response to "They were able to do this because the regulator was always unable to oversee either company." What part of "ALWAYS" is too difficult for you to understand?

What changed? Why now?

Since you are too busy making assertions rooted in ignorance of the financial system to research this yourself….

In the early part of this decade congress, lead by Barney Frank, increased conforming loan limits and urged Fannie and Freddie to make homes "more affordable" to people who have traditionally been considered too risky to lend to. In other words, congress pretty much mandated that Fan and Fred buy the home loans that were unlikely to be repaid. This meant that any such mortgage extended by a private bank could now be sold to Fan and Fred and increased the number of Alt-A and other risky mortgages extended.

So, why did congress decide to do that now? Ask the politicians. Specifically, ask Barney Frank why he was the most aggressive in defending Fan and Fred against any reform that would have made some headway in protecting taxpayers. Once congress decided to all but mandate that Fan and Fred take more risk with taxpayer backing, it was only a matter of a housing downturn. Mind you, even with previous conforming loan standards Fan and Fred would have eventually collapsed. They collapsed now instead of years from now because they were encouraged to increase the risk in their portfolios recently and the market went south.

Think of it this way. You are driving your car down the road and you hit a big pot hole. You hear a loud noise but after a couple miles of driving, everything seems normal. 50,000 miles later, your wheel falls off.

What caused the wheel to fall off at exactly 50,000 miles? (Why now?) Who cares why it took 50,000 miles. All that is important is that driving over the pot hole eventually caused the wheel to fall off.

Bad things will eventually happen with bad policy.

Go ahead, Moron, "pull" your "research".

Let’s not forget this.