[CutePuppy]

Earlier this year, Treasury Secretary Tim Geithner laid out a general outline for how the Obama Administration would reform Freddie and Fannie, including insuring that shareholders don't reap gains while the public pays for the losses.

"While the form of the housing finance system will change, government has a key role to play in shaping the future of the nation's housing finance system," said Geithner.

In other words, their version of "reform" means that they want to keep the basic system, just rename it... These people are so bass-ackwards!

Even after the total disaster of market-distorting government entities like Fannie, Freddie, FHA, HUD, and government policies like CRA and the "ownership society," they still want more government involvement ("key role") in the mortgage financing business... Never mind that without government backing ("implicit" or explicit) the lenders and/or investors in the mortgage industry would do due diligence and pay attention to the asset values and the ability to pay, because they would lay their own money on the line instead of just collecting origination fees and/or reselling mortgages to the government!

Gotta love the "experts". Why wouldn't liquidity and securitization happen in a properly functioning, economics-based, not corrupted government-distorted market? It does in most normal public markets.

[Sacajaweau]

It wouldn’t surprise if Obama tries to change the system and we RENT from the government.

[CutePuppy]

Related article : The Future of Fannie Mae and Freddie Mac - CNBC, 2010 July 01

A housing sector without Fannie Mae and Freddie Mac is a possibility, Edward J. DeMarco, director of Federal Housing Finance Agency (FHFA), told CNBC Thursday.

Demarco said another future scenario might involve Fannie and Freddie remaining in business, but without dependence on the federal government.

But, he cautioned, success could happen only if an infrastructure is in place that allows private firms to re-enter what is a $10 trillion mortgage market.

Either scenario is possible, said DeMarco, but both “need appropriate transition. Our housing market is still quite fragile.”

“We cannot flip that switch tomorrow and expect to turn it over to the private sector, because the plumbing is not there,” he said.

To date, taxpayers have been are on the hook for some $145 billion in losses connected to the troubled housing market. The Congressional Budget Office estimates that figure could balloon to $400 billion, and some experts have even put a $1 trillion price tag on those taxpayer-responsible costs. .....

"Re-enter" means he acknowledges that there is almost no private market in mortgage industry today; FNM/FRE/FHA own or guarantee 9 out of 10 mortgages in the U.S. "Go slow" approach to unwind and phase out Fannie/Freddie makes sense, but who would need or want TBTF behemoths Fannie and Freddie without their government's guarantee? This monster was created (and later split to provide the façade of "competition" between Fannie Mae and Freddie Mac) by the government as part of the FDR's New Deal. CRA evolutions and related lawsuits simply made it into an "offer banks couldn't refuse".

[UCANSEE2]

“Who Would Finance Mortgages If Fannie, Freddie Disbanded?,”

The same people who finance it now.

[doc1019]

Who Would Finance Mortgages If Fannie, Freddie Disbanded?

The same folks that financed mortgages before Fannie and Freddie.

[Candor7]

Disband Fannie Freddie, they are the ones who created the housing bubble and ruined our economy.

Replace it bhy creatinng a new agency, put it under direct administration at the Federal Treasury, and keep politicians away from it.

[dalereed]

banks would finace mortgages as long as you put down 20% and your payments, including insurance and taxes, don’t exceed 30% of your net income.

That was the criteria when I bought my home before Fannie and Freddie and financing a home wasn’t any problem!

Fannie and Freddie should never have been created!!!!

[mulligan]

Honest and qualified people.

[givemELL]

Perhaps they have a global entity in mind to superceed the Fed and all US and other nation-state central banking systems. Hedge funds have the capability, paralleling the efforts of nation-state banks and financial institutions to continue securitization of anything and everything from Carbon trading securitized instruments to mortgages and participate in a new global entity. The SDRs of the IMF, advocated by Russia and China are not enough.

After nationalization comes.....globalilzation, unless bigger war ensues, and a fierce fight ensues to determine the ONE winner, who will take all. Of course, we know Phyrric victories are possible, and socialism favors both victories and ties (as in soccer, the perfect socialist game).

[Wuli]

Canada does not have a Freddie or Fannie and it has a home ownership rate equal or better than the U.S.; about 60%.

It does have a national agency, which offers some things like our FHA and some other things too. But, it also works on a policy principal that assumes home ownership is NOT necessarily the right thing or the best thing for everyone.

Also, Canada’s mortgages

(1) are not so highly securitized as in the U.S.; most mortgages are held to maturity by the lender;

(2) you are never able to walk-away from a mortgage debt (as you can in the U.S.) if you default, it follows you;

(3) mortgage interest is not an income tax deduction.

What one really has to ask is:

how is it that the Canadians can ignore most of the shibboleths of U.S. housing policies, and obtain equal or better home ownership rates, if those shibboleths are so essential to high home ownership rates?

Answer: THEY’RE NOT!!!!!

Then why do we do them?

Politicians buy votes with them; that is their essential purpose and function.

[Oceander]

"But without the guarantees, experts say, there would be no securitization, no capital from the rest of the world for long-term fixed rate mortgages and banks would have to hold on to them."

Bull and sh*t. Certainly the various tranches of risk in an MBS would be priced differently - those tranches that had previously benefitted from the taxpayers' involuntary guarantee would bear a higher price - but that would finally mean that those tranches were getting prices properly, according a meeting of the minds of willing buyers and sellers, without the inefficient misallocation of capital and risk caused by government's distortion of the market. However, those securitizations would go on and, in fact, the higher risk premiums would tend to attract more, not fewer, investors.

How can we be so sure? Do we need a Fannie or a Freddie guarantee for securitizations in credit card receivables to work, or securitizations in auto loans, or in leases, or in ....?

No, we don't. Same goes for residential mortgages. The assertion that we do is nothing more than covert political disinformation designed to fool us into thinking that we need to have government actively interfering in the markets for a capitalist free-market to work properly - the truth of the matter is diametrically opposite to that.

[NonValueAdded]

George Bailey?

[Ethrane]

Gee...you mean that no one would underwrite mortgages unless they were deemed ‘credit-worthy’ risks?

Really? Whoulda think it?

You don’t ‘shape’ a housing finance system...you let the MARKET work.

[Intolerant in NJ]

“We’ve been through another crisis, the S&L (Savings and Loan), where banks indeed held long-term mortgages on their books," said Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School. "That’s a recipe for disaster.”...no, the recipe for disaster was when the government started messing around with the established laws which had determined the conditions under which many people had taken out their loans and budgeted their savings and other investments - among other things it abolished the passive investment credit for real estate which immediately sucked the value out of many of the mortgages the S&L's had on their books, and many of them went under - if government would stop interfering - excuse me, regulating - people could start making investments in the economy including housing which would be longterm and stable, far from disastrous.....

[wac3rd]

If Fannie or Freddie “disbanded” and the existing loans were paid off/sold/foreclosed by outside investors, the immediate effect would be a huge drop in home prices. The FHA would be innundated, but they already hae a huge default rate and would hopefully only serve Vets.

Oddly enough, if the GOP wins back a majority in one or more houses in November, and Fannie folded, private banks and investors would fill the void...but there would be no subprime, no doc, no job, no savings, no credit-type loans, they would be underwritten like the old days.

Minorities and Liberals would cry and in 3 years, Barney Fwank would be pressing for loosening of standards, again.