In keeping with this week's developing "real estate crisis" motif, it looks like Fannie Mae and Freddie Mac might be on their way out. That is, if one-time chief apologist Barney Frank has his way.
First, I just have to say that my hat's off to jbd (if you really are a high school senior) for the previous post. Well done, sir. Now maybe you can direct some of your keen analysis to what might happen if Fannie and Freddie went away. Of course, Barney Frank's idea is to just do away with them and then replace them with something else, so on balance nothing changes. But I'm curious about the short and long-term effects on the housing market if the two GSE's were to go away and not be replaced.
We've essentially nationalized mortgage lending. That means that every tax paying American is now a mortgage lender, for good or ill. The casino for mortgage derivatives is still wide open, and the pit boss is still on a smoke break. So all the systemic problems that led to the meltdown are still being ignored.
And now we face Alt-A resets in droves, and a commercial real estate meltdown that promises to make the residential meltdown a pleasant memory. Makes me glad I'm out of the country, actually.
It seems to me that this grand financial experiment has failed, and that we need to return to the traditional lending model. Yes, not everybody gets to own a house. Imagine if banks actually had to have a vested interest in their community again. Their portfolio of loans couldn't be packaged and foisted off on an unwitting investor; they would actually have to own the loans in their area. How fast do you think 20% cash down payments and 750+ credit scores would come back into vogue?
Edmundo,
Cool points on acknowledging the post by the freakin high school kid. I read the line "I'm actually a high school senior" and my jaw dropped. Whoever this kid is needs to be picked up and paid attention too.
Nonetheless, we all know sooner or later the commercial loan crisis will have us cringe in our corners but honestly I'm praying for a miracle when I think about the Alt-A resets taking affect. I knew they'd be a recipe for a disaster when I was looking to buy a house in 2006-07. Am I glad I rented instead. I look back to those days and realize there are many that participated and took the minimum payment route but never did I realize the extent of those loans in California. Maybe an amputating earthquake isn't so bad to think about in comparison. I'm extremely concerened about what this means for all of us in the industry and the world without IB's and Commercial/Consumer Banks.
In response to your question what'd happen to F&F if they come to cease as we know them. Well any analysis would be inaccurate in measuring the consequences. The depth and width of the financing provided by these entities is too broad and diverse for anyone to conclude the affects of a replacement. I personally don't think it's near possible to follow through with such a proposal.
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