Wednesday, June 3, 2009

Freddie, Fannie and Failure

Freddie Mac and Fannie Mae are the ultimate example that the path to Hell is paved with good intentions. Owning a home is the American dream, but the well-meaning Left took the dream one step further. The dream became an entitlement and a nightmare was born.

Add CRA into the mix. Under the Community Re-Investment Act financial institutions had to show that they were meeting the needs of their communities. Resistance was futile. Failure to meet CRA goals could result in fines, prevent a merger or stop an institution from opening a new branch.

The truth is, not everyone qualifies to own a home. I know all about good intentions and how hard it is to look at a young coupe or a single mother and say, “no.” I've done it. I also know how lucky I am that I got out before the rule became ‘everybody qualifies’.

Financial institutions discovered the wonderful world of creative financing. Thanks to a myriad of new programs everybody qualified on the day they signed on the dotted line. If the following day or the following year the new home owner no longer qualified that was Freddie’s or Fannie’s problem. The government, with all good intentions, created a false sense of confidence by relieving mortgage originators of most, though obviously not all, of the risk.

The bubble has imploded resulting in taxpayers bailing out Freddie and Fannie to the tune of 400 million dollars. We don’t know yet if that will be enough. Hopefully, we have learned that it is sometimes kinder to say “no” upfront than evict someone later. Somehow, I doubt it.

h/t Not Tucker Carlson

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