One thing is for sure, as long as the federal government has control of these two boondoggles, trouble can not be close behind, again.
Barney Frank and Chirs Dodd, before they left office, made sure the mortgage market will be headed back to another huge bubble like the one that brought down the economy in 2008.
These two towers of intellect made sure, through law, that everyone is still entitled to what ever home they so desire, and that banks and lending institution have to accommodate them with nearly the same loan laws that brought on the last mortgage collapse. The Dodd/Frank Act not only makes thing worse for banks but through more regulations, makes it harder to say no to the home owner, except saying no to a new business that wants a loan.
The insanity here is how this can happen in the face of reality. We are headed to financial Armageddon and yet, instead of applying the brakes to stop our slide into the abis, we are pressing on the accelerator.
The insanity here is the complete ignoring of reality and past history. It seems that it's progressive politics as usual and it's progressive politics that will destroy our country.
Fannie and Freddie's Huge Profits Raise Questions for Future of Mortgage Finance
Source: "Fannie and Freddie's Huge Profits Raise Questions for Future of Mortgage Finance," Economic Policies for the 21st Century, October 9, 2012.
October 18, 2012
Government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac, accounted for 100 percent of the mortgage market through June 2012. The lowest percentage of the share these GSEs held in the mortgage market was 95 percent in 2008, says Economic Policies for the 21st Century.
•Between 2008 and 2011, Fannie and Freddie recorded $91 billion in credit losses on mortgages.
•But in 2012, this figure fell to just $14 billion.
•The GSEs combined to generate $203 billion to protect against future losses.
•However, in 2012, the projection of future losses had declined and the combined provision against future credit losses was just $2 billion.
Fannie and Freddie's losses leading up to the collapse of the housing market originated from buying mortgages in an overheated housing market. Many of the loans given out in 2006 and 2007 were in the form of interest-only and low-documentation loans. These loans accounted for 64 percent of all loses. However, once these types of loans stopped going out, the GSE's finances picked up once again.
There are several factors that are contributing to the success of the GSEs.
•First, Fannie and Freddie face less competition today than they did between the 2000 and 2005 period.
•Second, guarantee-fees are higher.
•Third, they are allocating less for compensation-related expenses.
•Fourth, conservative underwriting has helped increase overall margins.
Arguably the biggest profit driver for Fannie and Freddie are the earning profits, which currently rest at $32 billion annually. On top of that, previous losses from 2008 to 2011 were carried forward to offset future tax liability; but considering the current outlook, accounting profits can exceed $60 billion in 2013.
The Obama administration amended the terms of the bailout to require that the GSEs distribute their profits to the Treasury as dividends each quarter. This may be the result of a desire to increase federal revenue. However, now that the Treasury has an incentive for the GSEs to continue profiting as they are in the status quo, there is little motivation to reform the mortgage market, letting the GSEs control 100 percent of the market.
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