The Obama Administration is committed to reform the broken system of housing finance including Fannie Mae and Freddie Mac. Tthe Obama Administration will develop a reform proposal for delivery to Congress by January 2011 according to the White House website. While we wait for the Obama Administration to reveal their new reform proposal of Fannie and Freddie, a new report, however, indicates that Republican Party might not be so eager to tear down Fannie and Freddie after all and they have changed their tune on getting rid of the two largest U.S.mortgage market.
From WSJ:
Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual.
Yet, Rep. Jeb Hensarling (R., Texas) submitted a bill that was backed by Republicans to start cutting the government's ties to Fannie and Freddie or begin winding them down in two years. Why the change of heart for Fannie and Freddie? Well, for one thing, the Republicans will find it differcult to compromise with Democrats with simply abolishing Fannie and Freddie even in a controlled Republican Congress in 2011. More importantly, Republicans are now in a tough position that they will have to live with the consequences of every decision of all bills including their decision on dealing with the two mortgage giants under the new Congress. Republicans know that they don't have a chance to get rid of Fannie and Freddie under the Democratic controlled Senate and President Obama.
In addition, Republicans don't know what President Obama's reform for the two mortgage giants. And what if President Obama's reform plan is to restore Fannie and Freddie under the original guidelines of the New Deal? In 1938, Fannie Mae provided "local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing." However, Congress set up Fannie as stockholder owned corporation in 1968 as government-sponsored enterprise (GSE) that would expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS). Freddie Mac was created in 1970 to expand the secondary market in mortgages.This was the beginning of mortgage-backed securities more than 40 years ago that is one of the major causes in the current housing crisis.
According to the White House website, Obama Administration addressed the profit driven system by the mortgage giants was not a benefit to the taxpapers:
"For decades, Fannie Mae and Freddie Mac privatized their profits while ultimately putting taxpayers at risk for losses. This type of 'heads private shareholders win, tails taxpayers lose' system of misaligned incentives makes no sense for the nation."
The big question is President Obama going to get rid of the stockholder owned corporation system in Fannie and Freddie and restore both two mortgage giants to the blueprint under the FDR's New Deal? That would be interesting to see.
Another possible reason for the Republicans to backing away from axing Fannie and Freddie is because the Financial Crisis Inquiry Commission Commissioner (FCIC) misled the Republicans about Fannie and Freddie's downfall. From OpEd News:
How was Peter Wallison able to give the impression that the majority of loans originated by Fannie Mae fit into high-risk categories? By cleverly distorting the data. One of the more vocal members of the Financial Crisis Inquiry Commission seems masterful at placing numbers out of context.
More than two years ago, Wallison collaborated with another purported expert on Fannie and Freddie,Charles Calomiris of Columbia University, to produce a report for the American Enterprise Institute titled, "The Last Trillion-Dollar Commitment: The Destruction of Fannie Mae and Freddie Mac." Its thesis seems to have been lifted in the GOP version of the FCIC report, which was published two weeks ago.
Released within days of the Federal takeover of the government-sponsored enterprises, "The Last Trillion-Dollar Commitment" has gone viral. It has been repeatedly cited by others, such as FreedomWorks and by House Republicans, About.com, Wikipedia and the St. Louis Federal Reserve. Wallison's numbers, which form the core of his analysis, could be debunked with a five-minute Internet search. Yet his falsehoods have gone unchallenged for more than two years.
According to Shahien Nasiripour, Republicans on the FCIC panel are going to write their own report. If that happens, the bipartisan consensus is out the window. Therefore, the FCIC that was created by Congress as an independent panel to examine the financial crisis for the past year would be a sham and another Washington whitewash. The FCIC final report due date was changed to January 2011.
All eyes will be focus on the President Obama's revealing of the Fannie and Freddie reform and the debates on different views by Republicans and Democrats on the housing policy under the two mortgage giants.
Another possible reason for the Republicans to backing away from axing Fannie and Freddie is because the Financial Crisis Inquiry Commission Commissioner (FCIC) misled the Republicans about Fannie and Freddie's downfall. From OpEd News:
How was Peter Wallison able to give the impression that the majority of loans originated by Fannie Mae fit into high-risk categories? By cleverly distorting the data. One of the more vocal members of the Financial Crisis Inquiry Commission seems masterful at placing numbers out of context.
More than two years ago, Wallison collaborated with another purported expert on Fannie and Freddie,Charles Calomiris of Columbia University, to produce a report for the American Enterprise Institute titled, "The Last Trillion-Dollar Commitment: The Destruction of Fannie Mae and Freddie Mac." Its thesis seems to have been lifted in the GOP version of the FCIC report, which was published two weeks ago.
Released within days of the Federal takeover of the government-sponsored enterprises, "The Last Trillion-Dollar Commitment" has gone viral. It has been repeatedly cited by others, such as FreedomWorks and by House Republicans, About.com, Wikipedia and the St. Louis Federal Reserve. Wallison's numbers, which form the core of his analysis, could be debunked with a five-minute Internet search. Yet his falsehoods have gone unchallenged for more than two years.
According to Shahien Nasiripour, Republicans on the FCIC panel are going to write their own report. If that happens, the bipartisan consensus is out the window. Therefore, the FCIC that was created by Congress as an independent panel to examine the financial crisis for the past year would be a sham and another Washington whitewash. The FCIC final report due date was changed to January 2011.
All eyes will be focus on the President Obama's revealing of the Fannie and Freddie reform and the debates on different views by Republicans and Democrats on the housing policy under the two mortgage giants.
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