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VANITY: There is no alternative [but ZOT] to the Fannie/Freddie model. And politicians know it but w
JNRoberts | 12/14/2011 | JNRoberts

Posted on 12/14/2011 2:22:08 PM PST by JNRoberts

The Fannie model worked for over 50 years. And the Freddie Model worked for decades.


TOPICS: Business/Economy; Miscellaneous
KEYWORDS: fannie; freddie; mittbot; romney; romneybot; zot
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Do you know why Fannie and Freddie are still around? Do you know why Politicians like Michelle Bachmann has not and can not offer a viable alternative?

It is simple. Because there is none and anyone who says there is a viable alternative is in a fantasy land.

There is no other way for the home finance markets to function. Without the GSEs, there is no Liquidity. Same goes for FHA and Ginnie Mae.

How long before a bank runs out of money if there is no liquid Secondary Market for $500,000 and up mortgages? Not very long.

The Fannie model worked for over 50 years. And the Freddie Model worked for decades.

The problem was with management, not the fundamental model. There is simply no viable alternative model. And the politicians know it and cannot offer one. What you have are people who are totally ignorant to what the Secondary Market is, liquidity, and mortgages. And it's all politics. The GSEs made it possible for people to purchase homes for decades and decades. And like Lehman, Bear, and Wachovia, etc, they got into trouble due to mismanagement. The model will work once again if they go back to the basics. And by the way, it was the American people who lied on all those bilions and billions of "stated income" "stated asset" loans but nobody has the Cajones to say it was the American People who lied. And it's all politics.

1 posted on 12/14/2011 2:22:15 PM PST by JNRoberts
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To: JNRoberts
Canadians seem to be able to get mortgages and I believe the percentage of home ownership up there compares favorably with ours. They have no equivalent of the Fannie-Freddie model.

How do those crafty Canucks do it?

2 posted on 12/14/2011 2:28:24 PM PST by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: JNRoberts

That’s no need for Freddie now that they’re no longer GSE’s but wholly controlled by the US Government. It was not until Fannie was spun out into a quasi-private enterprise that Congress saw fit to create Freddie as “competition” for Fannie.

Kill Freddie, roll all their operations into Fannie and call it done.


3 posted on 12/14/2011 2:28:56 PM PST by NVDave
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To: JNRoberts

Fannie and Freddies fatal flaw was exposed in 2008. A bank owned and run by politicians will always collapse in a heap of corruption. It only took 10-15 years after the virus of CRA was injected into it for TSTHTF.

There is nothing new under the Sun. To believe that somehow our present Gov’t and crop of bureaucrats have outsmarted the market and human nature to invent a way to give everyone homes - and you are the one living in fantasy-land.


4 posted on 12/14/2011 2:29:02 PM PST by PGR88
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To: JNRoberts

These two entities could easily be shifted over to the private sector and save the taxpayers billions. The only argument that hold water to keep the Federales in this is because of the guarantees. I am sure something can be set up to get around that in the way a private model is configured.


5 posted on 12/14/2011 2:30:43 PM PST by Lazlo in PA (Now living in a newly minted Red State.)
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To: JNRoberts
I'm not sure I understand why there is no alternative.

When I bought my house in the early 80s, I made a down payment in excess of 20% of the purchase price. The house was mortgaged as security; and I had a job that paid me about five times the annual payment required to service the loan.

Are you suggesting that there would have been no competition for my business had there not been Federal Government guarantees?

ML/NJ

6 posted on 12/14/2011 2:30:50 PM PST by ml/nj
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To: JNRoberts

Ofcourse there is an alternative-the free market!


7 posted on 12/14/2011 2:33:01 PM PST by fortheDeclaration (All that is necessary for the triumph of evil is that good men do nothing. Burke)
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To: NVDave

Combining the 2 entities does not eliminate systemic risk.

Besides, Freddie is the less risky of the two.


8 posted on 12/14/2011 2:33:59 PM PST by NOVACPA
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To: BfloGuy
How do those crafty Canucks do it?

The same way that we crafty Canucks got along with no Glass-Steagall-type legislation since 1988.

(Well, someone had to say it.)

9 posted on 12/14/2011 2:37:39 PM PST by danielmryan
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To: BfloGuy

free market?


10 posted on 12/14/2011 2:37:39 PM PST by rokkitapps ( Hearings on healthcare waivers NOW! (If you agree make this your tagline))
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To: BfloGuy
From AEI.
Canada makes a useful comparison for the U.S. Both countries are rich, advanced, stable, have sophisticated financial systems and pioneer histories, and stretch from Atlantic to Pacific. But Canada has no housing GSEs. Mortgage interest is not tax deductible. It does not have 30-year fixed rate, freely prepayable mortgage loans. Mortgage lending is more conservative and much more creditor-friendly.

This relative creditor conservatism has meant that Canada and Canadian banks have so far come through the international financial crisis in much better shape than their U.S. counterparts.

Canadian mortgage lenders have full recourse to the mortgage borrower's other assets and income, in addition to having the house as collateral. This means there is little incentive for borrowers to "walk away" from their mortgage. The absence of a tax deduction for mortgage interest probably increases the incentive to pay down debt. Most Canadian mortgage payments are made through automatic debit of the borrower's checking account--a technical but important point. Canadian fixed-rate mortgages typically have prepayment penalties to protect the lender and the interest rate on the loan is fixed for only up to five years.

This relative creditor conservatism has meant that Canada and Canadian banks have so far come through the international financial crisis in much better shape than their U.S. counterparts. Canada didn't avoid the recession, but mortgage delinquencies have so far remained much lower than in the U.S., with the percentage of loans delinquent 90 days or more at approximately one-tenth of the U.S. level.

What about the home ownership rate--the percentage of all households owning their own home? Isn't there a home ownership price to pay for this Canadian credit conservatism? No.

Here's the home ownership rate in Canada: 68%. In the U.S. it's 67%.

The Canadian system would indicate that our hodge-podge of tax deductions, government pseudo-banks and regulatory skullduggery are just favors to the bankers and the housing industry. They don't increase home ownership and they do tend to cause recessions.

11 posted on 12/14/2011 2:37:59 PM PST by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: fortheDeclaration

The whole thing sounds like a bunch of financial voo doo to me. However I was strictly raised to buy only what I could afford and definitely not rely on credit.


12 posted on 12/14/2011 2:37:59 PM PST by cripplecreek (Stand with courage or shut up and do as you're told.)
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To: fortheDeclaration

>>Ofcourse there is an alternative-the free market!<<

Yeah sure. Show me the investor/bank that is going to hold a 30 year Fixed rate $500,000 whole loan (mortgage) in their portfolio. And if he is, how many can he stick in that portfolio until he runs out of money? You can’t.

But the “free market” hold a say, a 6 month fixed rate mortgage. Only one small problem. The homeowner has to find $500,000 within 6 months to pay off the first loan.

Again, we are talking about “conforming” loan limits, middle class type loans. Not the Jumbo loans where the Govt. does not play a part. A small segment and usually much more limited options for borrowers....i.e. ARMS only, much higher rates, prepays, etc.


13 posted on 12/14/2011 2:38:27 PM PST by JNRoberts
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To: BfloGuy

Good refutation. What about other loans? A car loan has an instantly depreciating asset as collateral, but some fool still loans money to buy them. Must be a Newt thread.


14 posted on 12/14/2011 2:38:46 PM PST by throwback ( The object of opening the mind, as of opening the mouth, is to shut it again on something solid)
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To: JNRoberts
There might be an alternative, but it would need a long transition time.
15 posted on 12/14/2011 2:40:12 PM PST by HereInTheHeartland (I love how the FR spellchecker doesn't recognize the word "Obama")
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To: JNRoberts
The Fannie model worked for over 50 years.

Truly you are both a pioneer and a legacy in the sex toy industry.

16 posted on 12/14/2011 2:40:36 PM PST by humblegunner (The kinder, gentler version...)
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To: rokkitapps
free market?

I've lived all my life within 40 miles of the Canadian border. I remember the migration of Canadians to Buffalo looking for work in the fifties. I remember how Torontonians used to flock to Buffalo in the sixties for entertainment and I remember when the Canadian dollar was worth sixty cents American.

None of it's true anymore. Canada's becoming more prosperous and more free than the U.S. That realization has really rocked my world-view.

17 posted on 12/14/2011 2:42:05 PM PST by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: JNRoberts

Complete nonsense. The free market is perfectly capable of loaning money. In fact,they’ll do a much better job than the government, because decision making will be based solely on whether the borrower can/will pay back the money.

Freddie and Fannie are what crashed the economy. They allowed trillions in bogus and worthless mortgages to be issued that could not have otherwise been issued without government guarantees.


18 posted on 12/14/2011 2:42:56 PM PST by catnipman (Cat Nipman: Vote Republican in 2012 and only be called racist one more time!)
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To: BfloGuy

>>How do those crafty Canucks do it?<<

It’s a good question. I believe Canada relies heavily on Government required “Mortgage Insurance” for any mortgage that a National Bank holds. And from the attached, the loan parameters are much more “conservative” which means “restrictive”.....i.e. loans reset as opposed to the 30 year fixed that America loves, etc.

And of course I don’t think the percentage of home ownership can match the USA on a historical basis.

My point is that for American Homeowners to continue to get into homes as easily as they did (before the fraud of stated low doc loans that ruined everything)...there is no better model. They just need to go back to the basics. Verify everything. Income, employment, credit and property value. http://www.imf.org/external/pubs/ft/wp/2009/wp09130.pdf


19 posted on 12/14/2011 2:43:21 PM PST by JNRoberts
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To: catnipman
because decision making will be based solely on whether the borrower can/will pay back the money.

Well that's just crazy talk. LOL
20 posted on 12/14/2011 2:44:26 PM PST by cripplecreek (Stand with courage or shut up and do as you're told.)
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To: JNRoberts

NOt sure if you are just trolling FR or not....

There are alternatives to FHA and F&F,

you could change origination laws and regulations easily to reflect Canadian, Danish or Belgian mortgage laws.

you could simply change FHA loans to reflect default risk due to income loss through UE or illness. Even adding points to require UE and disability insurance for FHA loans and conforming loans backed by F&F would do wonders.

you could turn to a soviet system.

you could enter into a system as described in the book 1984 where incomes dictate class and geogrpahic segregation in housing.

you could dismantle F&F and shift the assets to a truly Federally backed Agency or Department.

the Federal government could also implement onerous regulations on the residential and multifamily construction industry that would require Federal approval for all new building projects.

The fundamental models of F&F haven’t worked since the real median wages of US households stagnated starting in the mid 1970’s.

The F&F model doesn’t work during periods of stagnant new household formation.

The F&F model doesn’t work now due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and shifting job markets.

The very conceptual framework of the “home ownership society” has failed, F&F were the major policy tools of the American regime to enable the entrapment of American wage earners into geographic cordons...

F&F only worked due to the labor market conditions in post-WWII America and the utter devastation in Europe’s industrial capacity. As the US continues to lose overall world marketshare in industrial production there will be ever diminishing needs for property values to be priced at levels above the immediate price point availability to the working wage earners in the country.

F&F only worked due to the labor market expansion of he baby boomers, if the RRE market stagnates due to a loss of FHA backing, it allows the younger generation to buy homes at market clearing prices. F&F as it stands now is eating the young in this country.

F&F created the second largest financial bubble in the history of the world and was a contributing factor for the largest financial bubble in the history of the world. The entire bubble paradigm that F&F rode in on has turned to a new synthesis that looks very much like the problems seen in Japan.

Houses made of tickytack is no way to finance an empire.


21 posted on 12/14/2011 2:45:41 PM PST by JerseyHighlander
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To: HereInTheHeartland
If there is, and maybe the Canadian model is one, where are the proposals from candidate using Fannie and Freddie as political whipping posts?

Bachmann's housing crisis answer in a recent debate was to look into the camera and pander to mothers. It was sickening and substance free.

22 posted on 12/14/2011 2:45:50 PM PST by newzjunkey (Republicans will find a way to reelect Obama and Speaker Pelosi.)
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To: humblegunner

>>>Truly you are both a pioneer and a legacy in the sex toy industry.>>>>

A response from someone with a clear and thorough understanding of housing finance and secondary markets.


23 posted on 12/14/2011 2:45:50 PM PST by JNRoberts
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To: JNRoberts

Canadians get along fine without anything like Freddie and Fannie. In their best years their positive effect was estimated to be something like 1/4 of 1% of a savings on mortgage rates for qualifying mortgages. There was no reason to have taxpayers subsidize those mortgages then and there’s even less reason for the programs now that they are such costly failures.


24 posted on 12/14/2011 2:47:31 PM PST by 9YearLurker
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To: ml/nj

Betcha a million bucks its a Fannie or Freddie loan.


25 posted on 12/14/2011 2:47:40 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: ml/nj

>>>When I bought my house in the early 80s, I made a down payment in excess of 20% of the purchase price. The house was mortgaged as security; and I had a job that paid me about five times the annual payment required to service the loan.>>>

And if you had a fixed rate loan and it was within the GSE limits, your loan was sold to the GSEs so your lender could get their money back to go out and make more loans.

And they kept the servicing so you were never even aware of your loan being sold, how many times, and to whom.

But most people have no clue on how the mortgage finance and secondary markets work and how important the GSEs were and are. They just talk like they know and end up looking like the fools they are. (I don’t mean you)


26 posted on 12/14/2011 2:49:02 PM PST by JNRoberts
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To: danielmryan

Elaborate...please.


27 posted on 12/14/2011 2:50:37 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: JNRoberts

The traditional mortgage note holders were S&L’s and banks, but now there’s a hold developed securitization market the does in effect the same thing Fannie and Freddie were doing.


28 posted on 12/14/2011 2:50:58 PM PST by 9YearLurker
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To: RockinRight

>>>Betcha a million bucks its a Fannie or Freddie loan.<<<

I hope he doesn’t bet you because he will most likely lose. And Fannie and Freddie didn’t ruin the economy. They were FORCED by Barney Frank and Chris Todd and the Libs to make loans to people who had no business getting loans and people , Americans LIED on those “low doc” “stated income” “stated Asset” mortgages. Just about every loan I ever saw......thousands...were all lies. And they know it. But you can’t say it.

Instead you have fools like humglgunner, ignorant fools who know as much about the GSEs as I do about lasik surgery.


29 posted on 12/14/2011 2:52:28 PM PST by JNRoberts
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To: throwback

That crap makes me want to find the grave of John Maynard Keynes so I can dig up his corpse and kick its ass.


30 posted on 12/14/2011 2:52:53 PM PST by cripplecreek (Stand with courage or shut up and do as you're told.)
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To: newzjunkey

Huntsman, who probably has the best economic policies, has proposed privatizing them.


31 posted on 12/14/2011 2:54:58 PM PST by 9YearLurker
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To: JerseyHighlander

Sorry, but you forgot one small statistic in your list.

The F&F model worked (Fannie from 1938) to about 2004, and Freddie from 1970 to about 2004. Over 60 years and over 30 years respectively. Thank you though.


32 posted on 12/14/2011 2:56:54 PM PST by JNRoberts
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To: ml/nj

I put 20% down in the 90’s, which allowed me to avoid PMI. Because it was a conforming mortgage that went through Fannie, I probably had a hair lower rate than I’d have paid otherwise (like a ‘jumbo’ of the time)—no big deal.


33 posted on 12/14/2011 3:01:13 PM PST by 9YearLurker
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To: BfloGuy

I’m sure by the time I post this lots of people will say “of course there is. It’s the free market!!!!”

Go to YouTube and search “Free to Choose” or Milton Freeman and educate yourself a bit. Sheesh.


34 posted on 12/14/2011 3:01:45 PM PST by PjhCPA (I'm an equal candidate criticizer.)
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To: 9YearLurker

>>>Huntsman, who probably has the best economic policies, has proposed privatizing them.>>>>

I would have one question for Mr. Huntsman. Please identify the investor that can either and or purchase and or guarantee TRILLIONS of dollars in Fixed rate mortgages and providing BOTH the investment grade guarantee and or portofolio or home for those TRILLIONS in home mortgages?

He can’t. It’s all talk.


35 posted on 12/14/2011 3:02:21 PM PST by JNRoberts
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To: BfloGuy

I replied to the wrong post....sorry!


36 posted on 12/14/2011 3:02:26 PM PST by PjhCPA (I'm an equal candidate criticizer.)
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To: BfloGuy

It would take a lot to transition to that here. I’ve long thought that SOME aspects (emphasis SOME) of the Canadian banking system could work here.

What about the liquidity issue? That is a legit concern, I think.


37 posted on 12/14/2011 3:02:46 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: 9YearLurker

>>>I put 20% down in the 90’s, which allowed me to avoid PMI. Because it was a conforming mortgage that went through Fannie, I probably had a hair lower rate than I’d have paid otherwise (like a ‘jumbo’ of the time)—no big deal.>>>

It was no big deal to you, but it was a big deal to your lender who was able to give you a good rate, then sell the loan, get his money back and lend it to some other family buying their home.

And the money they LENT you came from Fannie too when they sold the loan they made to someone before you and sold it to Fannie. See how it worked?


38 posted on 12/14/2011 3:04:52 PM PST by JNRoberts
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To: JNRoberts

I agree with you that F&F worked well until circa 1997 - 2002 timeframe.

However, I would be willing to also give the Canadian model a looksee.


39 posted on 12/14/2011 3:07:34 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: JNRoberts
Americans LIED on those “low doc” “stated income” “stated Asset” mortgages. Just about every loan I ever saw......thousands...were all lies. And they know it. But you can’t say it.

They did...but loan officers did too, sometimes changing income or looking the other way. Takes two to tango, as they say.

40 posted on 12/14/2011 3:10:28 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: JNRoberts

I’ve been in the banking world for years and years, I know how it works. Without fairytale gov guarantees there won’t be any making of trillions in bad mortgages mandated by Congress. There’s nothing with a little bank demand driving up the interest paid on deposits, and the whole point of securitization is for risk to be better paid and managed, including the offsetting of interest rate risk.

Where did you come up with your loopy ideas?


41 posted on 12/14/2011 3:12:28 PM PST by 9YearLurker
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To: NOVACPA

Never said it did.

It would eliminate duplication of administrative costs, as well as significantly reduce the number of plum government jobs to be given out as gifts and sinecures to Democratic Party hacks.


42 posted on 12/14/2011 3:15:42 PM PST by NVDave
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To: JNRoberts
There is simply no viable alternative model

Sure there is , and I'll give you one.

I would base the entire mortgage industry on REITs. REITs are Real Estate Investment Trusts, corporations with a special tax classification where the income is derived from real estate. For example, REITs include many of those large apartment complexes in many cities. Investors receive a return through dividends in the company, whose income is derived from rents, etc from the real estate.

A REIT can own homes and rent them out. It can also own mortgages. So lets build a housing model on that.

One of the fundamental flaws in the old mortgage industry is that no one involved in the entire chain of financing has any real interest or capacity to handle the underlying asset. The only people who want the houses are the people who bought the mortgages. So when houses get foreclosed, someone in the bowels of the financing industry gets stuck with a house they didn't want.

A REIT can fix this, because a REIT actually would have an interest in the home. If a person with a mortgage forecloses, they can simply move out and the REIT takes the house and rents it to someone else. Or, they could even keep the same person in the house, but take their equity and convert them to renters with maybe a lower rent. Finance become vastly simpler when the lender has a use for the collateral asset.

REITs can prevent bubbles. How? When a prospective homeowner works with a REIT to buy a house, the REIT would be lending money based on what they think they could get for the house in rent on the open market, not what they think the people in their office can pay, or what they can get by tossing it to the securitization machine at Fannie Mae. This puts a lid on speculation. If they person in their office forecloses, and the REIT takes possession, they need to be able to rent it out at near the same income. If some wanted to overpay for a house, they can, but it would be through a larger down payment, not through a larger loan.

So, this dramatically simplifies the industry, but still provides financing, and even keeps housing affordable, which was a Fannie and Freddie mandate, until they lost focus and fed the bubble.

43 posted on 12/14/2011 3:18:18 PM PST by Vince Ferrer
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To: RockinRight
Until 1988, Canada had legislation that separated financial-service firms into one of four industries: banks, trust companies, insurance companies and brokerages. A firm had to stick to one of the four and no cross-ownership was permitted.

In the mid-1980s, that legislation was repealed effective 1988. Ever since then, there have been no cross-ownership rules. Banks can go into whatever financial-services area they please, and they have since '88. All of Canada's major banks own trust companies, insurance companies and brokerage houses (full-service and discount.) It's been that way for close to a quarter century.

44 posted on 12/14/2011 3:20:51 PM PST by danielmryan
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To: JNRoberts

By “work”, do you mean by keeping housing prices inflated? Cheap and easy credit, combined with giving to unworthy borrowers prevents a necessary correction in the market.


45 posted on 12/14/2011 3:24:09 PM PST by KoRn (Department of Homeland Security, Certified - "Right Wing Extremist")
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To: newzjunkey
What did Bachman say?

Honestly; if the Fannie Freddie model hadn't been corrupted; it would still work.

It was a good way to to keep long term loans off the books of lenders who can't take in deposits with that length of time generally.
But Fannie Freddie shouldn't be holding those bonds, they should be held in the private sector.

46 posted on 12/14/2011 3:25:59 PM PST by HereInTheHeartland (I love how the FR spellchecker doesn't recognize the word "Obama")
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To: JNRoberts
And if you had a fixed rate loan and it was within the GSE limits, your loan was sold to the GSEs so your lender could get their money back to go out and make more loans.

Obviously the government could come along and by my $100,000 loan for $150,000 and the lender would happily sell. I guess my question for you based upon your original assertion was: would I otherwise have been unable to obtain my loan at or about the same (absurd) rate I paid then.

Now, BTW, I just refinanced this week. I didn't have a mortgage last time, and I don't have one now. It's just a "home equity" loan. Every month the bank just takes the payment out of my checking account. Is this being made to be resold too?

ML/NJ

47 posted on 12/14/2011 3:31:25 PM PST by ml/nj
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To: ml/nj

Most home equity loans, AFAIK, are in fact “old fashioned” portfolio loans, I.e., lent straight off deposit funds and serviced and owned by the bank.


48 posted on 12/14/2011 3:56:21 PM PST by RockinRight (If you're waiting to drink until you find pure water, you're going to die of dehydration.)
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To: catnipman
Complete nonsense. The free market is perfectly capable of loaning money. In fact,they’ll do a much better job than the government, because decision making will be based solely on whether the borrower can/will pay back the money.

Until Fannie was started up, home ownership was well under 50%. Your community banker isn't going to loan money for 30 years because of the interest rate risk. The 30 year would probably disappear in favor of ARMs if GSE's weren't around..

49 posted on 12/14/2011 3:57:00 PM PST by EVO X
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To: KoRn

>>>By “work”, do you mean by keeping housing prices inflated? Cheap and easy credit, combined with giving to unworthy borrowers prevents a necessary correction in the market.>>>

When you decide to read my entire post, including the part where Fannie and Freddie fianlly, after DECADES of a model that worked and did’t cost the taxpayers a dime, went wrong thanks to the Barney Franks who with their CRA legislation, forced the GSE’s to lend money to unworthy borrowers, ...when you read my entire post, I’ll answer you.

But in the meantime, if you think Fannie has kept housing prices inflated for the past 70 years.....(LOL!, they were charetered in 1938 genius).....then hey, it’s what you think. Foolish thinking I can’t control.

But I will say, from 1938 to around 2004, Fannie (and Freddie since 1970)....did a Pretty, pretty, pretty, good job in helping to ensure the ENGINE of our economy....HOUSING, was steady, stable, and the significant force behind creating the tens of millions of jobs related to Housing that you no doubt also benefited from for the past 70!....years.

And genius.....they never cost the taxpayers a dime until the last few years when the Dems forced them away from their original underwriting and qualification guidelines.

But hey, you know better and it shows.


50 posted on 12/14/2011 3:57:54 PM PST by JNRoberts
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