by Respectfully - Supposn

Created on: October 19, 2008   Last Updated: October 23, 2008

Credit gridlock, (credit Crunch) an article in 4 parts: Background The White House's (latest?) proposal Alternate proposal The Future of Fannie Mae and Freddie Mac.

//////////////////////////////////////////////// /////////////

Part 1. Background:

Our government is legally obligated to uphold their monetary commitment in regard to federally insured, (i.e. FHA & VA) mortgages.

Historically the insurance premiums of the mortgages and the requirements upon all parties and the collateral property were sufficiently stringent. The low down payment requirements of FHA and later the VA mortgages enable more lower income families than to otherwise to be home owners. The self supporting federal mortgage insurance itself has been a net national benefit.

The Federal National Mortgage Act, (FNMA, aka Fannie Mae) was created in 1938 as a government agency to purchase bundle and resell FHA mortgages to any persons or entities. FNMA was later authorized to deal with the newly created VA mortgages.

The purchasers of mortgages resold by FNMA were and are not now taxed upon their incomes due to the mortgages. This increases their value to purchasers, thus the price paid to FNMA. Lenders selling their mortgages to FNMA free their capital for reinvestment. FNMA indirectly increases the pool of wealth available for the mortgages they deal with.

After the Second World War FNMA's charter was modified to be a government supported entity, (a GSE) with some private share holders. Income derived from shares of GSEs or loans to a GSE are not taxed in the USA. This brings still more wealth into the mortgage pool. In 1968 congress and President Johnson authorized it to be a completely privately owned GSE.

[Complete privatization contributes but (in my opinion) is not the primary reason for the extent of FNMA lobbying power within the halls and houses of our government. "Normal" government agencies (with no privatization) often have blurred distinctions between the agencies and the entrepreneurs they deal with. Those who should be regulated have too often written the regulations that would be applicable to themselves. Upper echelon government regulating personal have gone to work for corporations that they previously were monitoring].

In 1970 Nixon signed the bill creating a second privatized government supported entity, (the Federal Home Loan Mortgage Corporation, aka Freddie Mac) to compete with the already existing and similarly charted FNMA). He also signed the Emergency Home Loan Act of 1970

• 1
• 2
• 3
• ...
• 7
• Next Page >>