Fannie and Freddie Are Back
April 20, 2015
After the housing collapse, and the bankruptcy of Fannie Mae and Freddie Mac, officials in Congress and the administration argued the two giants' massive role must be reduced in the housing market, with numerous hearings in Congress on how to wind down these two government-sponsored enterprises.
Banks, which aided and abetted the housing bubble, were hit with hundreds of billions of dollars in losses due to defaults and write-downs, and the U.S. economy suffered a severe downturn more than seven years ago.
But now Fannie and Freddie are back. Here is what they are doing:
- They just debuted their new HomePath Ready Buyer Program, which lets first-time homebuyers get up to a 3 percent rebate of a home's purchase price if they buy a Fannie Mae property.
- The new program could create $4,500 in savings on a $150,000 home for first-time buyers.
- In addition to the 3 percent rebate, Fannie Mae will refund the cost of the homebuyer education course.
All part of the Obama Administration's push to make homeownership affordable to a bigger group of borrowers. The government now wants to expand the opportunity for homeownership to credit-worthy borrowers who have enough income to afford a loan, but have not saved enough for a larger down payment.
But is this new effort good for taxpayers and the economy, or is this similar to programs that led to the subprime mortgage crisis and housing crash? Will taxpayers be on the hook for another mega-bailout, given that Fannie and Freddie combined were one of the biggest bailout cases of all, at $187.5 billion?
Jeb Hensarling, chairman of the House Financial Services Committee, has said that the Administration's new push is "an invitation by government for industry to return to slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy" and that they "must be rejected."
Source: Elizabeth Macdonald, "Fannie and Freddie Restart Risky 'Affordable Housing' Programs", Fox Business, April 17, 2015.
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