The FNMA/FHLMC Problem

January 2nd, 2011

question mark pile

Why is no one concerned about the socialized and nationalized state of mortgage lending? There are almost NO OTHER mortgage options available besides government-backed loans such as FNMA, FHLMC, FHA, and VA. Government now backs well over 9 out of 10 loans and dictates all the rules and guidelines. I feel like we have more patience for government backed mortgages than we would government backed cupcakes!

Government cupcakes?

If we had to suffer a government backed cupcake industry we’d lose our minds and revolt. Imagine the stale, crusty, moldy fare we’d have to choose from. Maybe we’d only have three flavors sold out of a centralized government run warehouse in Washington DC. Rules would be so arcane we may consider not eating cupcakes anymore! They’d have rules that would require we eat no more than one cupcake per week, consumed only with milk. No coffee, juice or water, thanks to the dairy lobbyists! And people that were overweight could only eat one per month. Maybe people that were obese would not be allowed to eat any at all, thanks to the health insurance lobbyists. Imagine the underground market for illegal cupcakes! And imagine the boon the cake and pie industry lobbyists would see. People would lose it! Why not lose it over the government backed mortgage industry?

Who is enforcing the guidelines?

If you have applied for a mortgage in the past few years you know that there has never been a more difficult time to get a mortgage. This is the time since the government took over FNMA and FHLMC and applied their rules even more forcefully. Be fully aware, it is not the bank nor the underwriter employed by the bank that care to ask you the detailed and complicated questions. It is only that they need to make sure they fully comply with FNMA/FHLMC rules or suffer a loan that is deemed unsalable. Banks are only meeting rules pressed upon them by the government.


I’ll give one small example that makes the point. I had a bank so fearful of government’s over-analysis and heavy handed rules, that they rejected a loan for a missed check box. It’s idiotic, and only something that would happen in the bureaucratic world of big government. Read more about ridiculous rules here.

How to make it easier

If consumers want an easier time getting a mortgage with less hassle and less paperwork, we need to get government out of the mortgage business. But once government gets into an industry its difficult to stop. And they start playing favorites and bring their inevitable bureaucracy to a transaction. More importantly, they get people addicted to government giveaways. Currently, government backing of the mortgage industry brings us lower interest rates, and people can’t dream of an alternative.

A free lunch?

Most people know there is no government giveaway. All government programs come at a price, usually a steep price. And we need to remember there was a mortgage market prior to government’s involvement. Canada is a perfect example of a country with no mortgage giveaways by government. Getting a mortgage is a reasonable process, and real estate prices have not fluctuated wildly up and down. When we pay the price for the mortgage industry to be removed from the government teat, it will be painful. But in the long run, it will be the only answer. Otherwise, we will suffer from expensive and inept government solutions to prop up the mortgage and real estate industries. In the end we pay more for in taxes than we benefit from. And we’ll suffer an up and down real estate market and an extremely ridiculous mortgage application process.


The ultimate solution is only one based in free markets, just as with a thriving cupcake industry. Government’s intervention in FNMA/FHLMC, trying to create homeowners out of renters solely for political capital, has already proven to be disastrous. It has helped to bring our country to the brink of economic catastrophe. Why would we allow them more control over the mortgage industry? Whether we remove ourselves from FNMA/FHLMC slowly or abruptly is not up to me. I only know that it has to happen. If someone else has a logical answer as to why government should stay involved in the mortgage industry forever, I’d like to hear from you.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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