Wednesday, December 8, 2010



This morning’s Wall Street Journal reports that the Bush/Obama Administration is putting pressure on Fannie Mae and Freddie Mac to “join fledgling programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth…”. This pressure is being applied, according to the Journal, through the Federal Housing Finance Agency, the primary regulator of Fannie and Freddie. Apparently, Fannie and Freddie have historically been reluctant to reduce mortgage balances, opting instead to go after mortgage insurers or attempt to force banks to buy back loans when those loans default, options that would be taken off the table, at least to a certain extent, were Fannie and Freddie to reduce loan balances. Indeed, of the 120,000 loans Fannie and Freddie modified in the first quarter of 2010, only 10 (ten, not ten thousand) involved a principal reduction.

A question and a comment are conjured up by this news.

First, why doe the Bush/Obama administration have to use FHFA to pressure Fannie and Freddie? As a result of the first efforts of the Bush phase of the Bush/Obama administration to have the taxpayers pick up the tab for deadbeat, or even potentially deadbeat, borrowers, the federal government owns Fannie and Freddie. So why can’t President Obama just tell Fannie and Freddie to reduce balances on mortgage loans? He’s the boss, after all.

Second, this is just the latest, and most direct, example, of the Bush/Obama administration’s making you, the financially responsible taxpayer and saver, bail out the financially irresponsible home “owner.” But there is no sense railing against this abomination. Long ago, through, among other programs, TARP and HAMP, our public servants, both Republican and Democrat, decided it is wise public policy to punish the responsible, both directly through spending on bailouts and indirectly through interest rates’ being kept artificially low to make it easier for people to “stay in their homes,” to reward those who bought more house than they could afford at least partially out of a desire to obtain a perch from which they could look down their noses at those of you who did not have the “means” to “acquire” such a home. Now you’re being forced to buy for your neighbor the home you were too prudent to buy for yourself. The spendthrifts win, the prudent lose, and the politicians congratulate themselves.

No wonder people are angry. And no wonder our economy, and our society, is doomed.

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