Hello, today’s topic is Fannie Mae and Freddie Mac. So far, the tax payers are on the hook for $138 billion in losses to date since the firm started losing money. Which has been 14 of the last 15 quarters. So, people wonder why it’s so difficult to get a mortgage.
Imagine you were buying a hamburger from a fast food chain that had lost money for 14 of the last 15 quarters. I’m going to assume that it would be a different experience than if you were buying a hamburger from a fast food chain that was making profits. Personally, I wonder if Fannie Mae and Freddie Mac even want to be in business. And of course they would not be if it were not for the government taking them into federal receivership.
So, here we now have a government that is talking about potentially privatizing Fannie Mae and Freddie Mac. And we as a country have been suckling at the government teat since the 1930’s when Fannie Mae and Freddie Mac were first started. And we started to subsidize interest rates through Fannie Mae and Freddie Mac secondary markets and the implied government guarantee. We’ve had tax write-offs of interest and property taxes. And all that factors into prices for real estate.
So now, all of a sudden, after eight decades of big government entry in the mortgage business, now they want to privatize the mortgage industry. I’m not sure where all of this is going to go, but it’s a scary proposition. But understand, when you apply for a mortgage, this is a little bit of the back story. It’s about why Fannie Mae and Freddie Mac, who write all of the rules for the banks to follow, are cracking down on mortgage guidelines and making it so difficult. Clearly, it’s not a secret to the state of the current industry and this is one part of it. More to follow in a future video blog.