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.
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.
How do those crafty Canucks do it?
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.
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.
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.
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
Ofcourse there is an alternative-the free market!
Combining the 2 entities does not eliminate systemic risk.
Besides, Freddie is the less risky of the two.
The same way that we crafty Canucks got along with no Glass-Steagall-type legislation since 1988.
(Well, someone had to say it.)
free market?
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.
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.
>>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.
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.
Truly you are both a pioneer and a legacy in the sex toy industry.
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.
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.
>>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
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