Four Proposals for Reforming Fannie and Freddie

Fannie and Freddie are in the news daily. What to do? The biggest issue I see is that banks are not responding in a manner one would expect, due to the coverage issued by Fannie and Freddie. I hear people all the time with a ton of anger against the bank and their frustration on how the banks actions cost the bank tens of thousands of dollars. Let alone the fact their credit was destroyed in lieu of damaged. The reason the banks act with disregard to the cost is there is no cost to them. They are fully covered for losses if they foreclose. So, why should they be cooperative with a home owner that is trying to do a Short Sale?

Really the only reason they are cooperative at all is due to government pressure. The government pushed HAMP, the Home Affordable Modification Program. Only that was a huge failure. The only people getting mods really don’t need them. They wouldn’t be getting foreclosed on if there was no mod, it is just saving them a hundred or two a month. After the failure of HAMP, the government rolled out HAFA, Home Affordable Foreclosure Alternative, or another way of the government reaching out to the public to say SHORT SALE IS BETTER THAN FORECLOSURE! At least for the government and in most cases the home owner it is better.

Anyway, here is an article I saw today with ideas to change Fannie and Freddie.

Daily Real Estate News | August 10, 2010 |

Four Proposals for Reforming Fannie and Freddie
The government is wrestling with what to do about Fannie Mae and Freddie Mac, which have needed a combined $148 billion since the government bailed them out two years ago.

There are many ways to restructure the system. Here are four that have the most support:

1. Fully private system. Eliminate Fannie and Freddie and let private lenders take over. The problem is that the market for mortgage securities issued without government backing is small – perhaps, nonexistent.
2. Semi-private system. Dissolve Fannie and Freddie and turn their function over to private companies that would pay for the right to issue government-backed mortgage securities. Small banks don’t like this plan because it would inevitably increase the role of the largest banks.
3. Hybrid system. Fannie and Freddie would compete against other companies that would also issue government-backed mortgage securities.
4. Government-run system. Fannie and Freddie would become part of the government. This is unpopular because it would expand the ballooning federal debt.

Source: Associated Press, Alan Zibel (08/09/2010)

Four Proposals for Reforming Fannie and Freddie

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