Dr. Housing Bubble 07/11/08

[Crewleader]

How Fannie met Freddie: The True Hollywood Story of Fannie Mae and Freddie Mac.

In order to understand the current market turmoil it is important to look at the history behind the two largest government sponsored entities (GSEs), the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). Fannie Mae was founded as a government agency, part of FDR’s New Deal in 1938 during the Great Depression to provide a secondary market for mortgages and to also provide liquidity to the mortgage market. The longer term fully amortized loan products were an innovation at the time.

The birth of Fannie Mae came at a time that was riddled with bank failures. During the 1930s bank after bank failed on bad loans and foreclosures skyrocketed. As documented by painful stories of people losing their homes during the Great Depression, this was the climate that bred Fannie Mae. The essence of Fannie Mae was to provide a larger incentive for homeownership. Keep in mind that in 1940 the homeownership rate was 44 percent. Measure that up with the peak of 69 percent in 2004.

As it turned out, the idea of a longer term fixed mortgage took hold and Fannie Mae served its purpose of providing liquidity for the next 30 long years. In fact, Fannie Mae held monopoly status on the secondary mortgage market all the way up until 1968. In 1968 Fannie Mae was converted into a private corporation. This is where I think much confusion lies in whether these are government agencies or private enterprises. Well, for 30 long years Fannie Mae was a government agency.

http://www.doctorhousingbubble.com/how-fannie-met-freddie-the-true-hollywood-story-of-fannie-mae-and-freddie-mac/

[customerserviceguy]

1. The whole idea of the housing bailout

is to stick two wounded quasi-governmental agencies with the bill for the fun party the bankers and realtwhores were having a few years ago. I guess we need some sort of a soft landing in the decline in house prices, but is this the best way to accomplish it?