The Wall Street Journal column by Nick Timiraos titled, "Fannie Mae Falls Back Into The Loss Column" is a serious wakeup call to every taxpayer in America. Nick points out that, " Fannie Mae reported a net loss of $6.5 billion for the first quarter as a weakening housing market dashed hopes that the company had stabilized."
Nick reports that, "Fannie said Friday [May 6th] it would ask the government for a fresh taxpayer infusion of $6.2 billion after paying dividends to the Treasury. The loss follows net income of $73 million during the previous quarter."
Red ink as far as the eye can see.
This comes on top of Michael Cembalest, the Chief Investment Officer of - the primary catalyst for the US ” he wrote:, revised his 2009 account of what caused the . Under the general heading of “Retractions
US Agencies played a larger role in the government agencies now look to have guaranteed, originated or underwritten 60% of all “non-traditional” mortgages, which totaled $4.6 trillion in June 2008. What’s more, this research asserts that housing policies instituted in the early 1990s were explicitly designed to require US Agencies to make much riskier loans, with the ultimate goal of pushing private sector banks to adopt the same standards.”than we first reported. In January 2009, I wrote that the housing crisis was mostly a consequence of the private sector… However, over the last 2 years, analysts have dissected the housing crisis in greater detail. What emerges from new research is something quite different:
Michael concludes: “As regulators and politicians consider a wide range of actions designed to stabilize the, some reflection on the role that policy itself played in the collapse would seem like a critical part of the process. It’s not clear that it is.”
Ed Pinto, fellow at the American Enterprise Institute, co-authored with Peter J. Wallison and Alex J. Pollock, a White Paper titled, "Taking the Government Out of Housing Finance: Principles for Reform...". The White Paper recommends that the U.S. housing finance market of the future should be governed by four basic principles:
Principle I: The housing finance market can and should principally function without any direct government financial support.
Principle II: Ensuring mortgage quality and fostering the accumulation of adequate capital behind housing risk can create a robust housing investment market without a government guarantee.
Principle III: All programs for assisting low-income families to become homeowners should be on-budget and should limit risks to both homeowners and taxpayers.
Principle IV: Fannie Mae and Freddie Mac should be eliminated as government-sponsored enterprises (GSEs) over time.
I agree with Ed, Peter and Alex. Until banks do what they are supposed to do - make loans and take all the risks in making those loans - we the taxpayers will continue to hold more and more bad paper. Today banks simply pass thru the loan and collect their fees. Banks make the loans but immediately sell the loan to you an me (a.k.a. Fannie and Freddie). You and I are taking all the risks while banks make huge profits. Banks have no skin in the game. If the loan goes South it is the American taxpayer that takes the hit, not the bank or even the person who took out the loan.
Time to sunset Fannie and Freddie.