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Unkie Ben Wants Your Moolah

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November 09, 2007 – Comments (8)

So he can bail out the jumbo mortgage market. Sounds like a good plan: stick the taxpayer with the risk on hefty mortgages to be purchased by Fannie and Freddie.

After all, shouldn't people like you and me lend a hand to all those poor folks who want the million-dollar homes?

8 Comments – Post Your Own

#1) On November 09, 2007 at 8:49 PM, GS751 (27.56) wrote:

yes I want my hard earned dollars bailing all the people out who spend more than they earn.

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#2) On November 09, 2007 at 10:19 PM, FleaBagger (28.14) wrote:

How else do you propose people spend more than they earn on America's all-important real estate market? Is stock-ownership the American dream? No! Is A high-paying job the American dream? No! Is dog-ownership the American dream? No! Only buying a home can make you truly patriotic, so shut your smart-aleck mouth, and open your stingy wallet for those poor, poor folks who just want to be more patriotic by owning a ginormous house - as well as those poor, poor folks who make millions of dollars providing the mortgages. Not giving tax revenue to jumbo loan borrowers would be as unpatriotic as not giving tax revenue to sports team owners in the form of free stadiums (stadia?), or not perverting the sugar market with tariffs in order to give sugar cane growers in Florida and Louisiana the opportunity to continue destroying the local ecosystems for their own profit.

Try to be more patriotic, Seth.

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#3) On November 10, 2007 at 4:54 PM, StockSpreadsheet (69.03) wrote:

While I am not a big fan of federal bailouts of banks, mortgage originators, brokers, etc., I would argue that Fannie Mae and Freddie Mac should be able to cover loans larger than their current $417k limit.  Most houses in California, Connecticut and many SMSA's across the country cost more on the average than the current $417k applicable to Fannie and Freddie.  Also, as I understand it, the $417k limit hasn't been raised in years.  I think they should raise it to $500k or $600k and then index it to inflation, (that bogus inflation rate quoted by the government that most people would say is much lower than real inflation), to take into account housing price inflation so that the GSA's can cover most of the housing in the country. 

I do not favor Fannie and Freddie, nor the Fed, buying or letting people use as collateral CDO's, as I think most of these are junk.  Let Wall Street unconstruct their unholy offspring back into the underlying mortgages and then make those mortgages Fannie or Freddie compliant and then let Fannie or Freddie buy them if they so desire.  I don't want to bail out the banks or Wall Street for the problems that they created for themselves.  I am in favor of bringing the Fannie and Freddie limits up to something closer to current market prices on mortgages.

Just my two cents.  I guess Fleabagger would consider me only slightly patriotic for my stance.  Take care and have a nice day.

Craig 

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#4) On November 10, 2007 at 8:13 PM, dwot (45.74) wrote:

You've got to be kidding...

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#5) On November 12, 2007 at 2:32 PM, tgrshark13 (48.23) wrote:

This is what happens when you have a social policy that is not indexed.  The $400K "jumbo" criteria for loans no longer covers the median home or median home loan size in many markets. If our society still accepts that government guarantees to allow people to get into the housing market is a program that we support, then upping the amount that can be guaranteed only makes sense. If you don't believe in the government providing any guarantees, then say so, but to suggest that an increase that reflects rising costs is  "sticking the taxpayers" is a bit over the top.

It is also my understanding that this proposal is for new underwriting going forward and is not a bailout for the current CDO/adjustable rate problem, which is what I thought I was going to read about when I saw the headline for your article.

 

Steve 

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#6) On November 13, 2007 at 2:16 PM, ByrneShill (77.38) wrote:

A better question is why does the US government sponsor mortgage in the first place. Even here in socialist canada we don't have govt-sponsored mortgage bubbles. What next? tv-mae, which will sponsor credit-card debt on plasma tvs? 

And btw, those who thinks Fred and fannie should cover loans larger than 417k, did you ever stop and think that maybe the limit is high enough, but 417k is not a reasonnable price for the average US family? A 7%, 25 years loan of 417k$ is almost 3k$/month, or 36k$/year. Most american families cannot afford such a mortgage. If home prices are 417k$+ on average, then the problem is the price, not the limit imho.

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#7) On November 14, 2007 at 2:41 PM, ikkyu2 (99.14) wrote:

There are two separate issues here.  One is allowing Fannie and Freddie to deal with jumbo loans (Alt-A), which may not be such a bad idea.

The other is Federal housing loan guarantees.  This idea must have been conceived during a heavy crack smoking session, possibly with Marion Barry.  Haven't we already seen what happens when mortgage originators are paid to originate mortgages and are completely divorced from the risks they're generating?  What happens is that the risk piles up and someone is left holding the bag.  Why should that someone be you and me - the American taxpayer - so that these corrupt, morally hazardous banks can continue lining the pockets of their fat-cat CEOs?  It's completely insane.

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#8) On November 16, 2007 at 10:26 PM, TMFBent (99.80) wrote:

"If you don't believe in the government providing any guarantees, then say so, but to suggest that an increase that reflects rising costs is  "sticking the taxpayers" is a bit over the top."

Not in the slightest. Currently, taxpayers don't bear the risk of the mortgages at Fannie and Freddie except for the belief, founded or not, that if the entire entity went bad, there would have to be a taxpayer bailout. What Bernanke is proposing, and what brainless Senators like Chuck Shumer are salivating over, is a chance to have the U.S. government actually guarantee those bigger loans against default. The plan calls for Fannie and Freddie to pay the government for this assurance, but let's get real -- how much? Answer: whatever Fannie and Freddie think is reasonable based on what they think the risk is.

That let's the fox guard the henhouse. But even if it didn't, the entire lending industry has shown that it has NO idea how to quantify risks in current mortgages, and Fannie is no different, except that it seems to take greater pains to try and hide its risk -- a fact we learned this week thanks to Fortune.

It is also my understanding that this proposal is for new underwriting going forward and is not a bailout for the current CDO/adjustable rate problem, which is what I thought I was going to read about when I saw the headline for your article.

It's absolutely a bailout for those markets. There's currently very little appetite for mortgage loans, especially larger ones. Bernanke specifically said that this would address that issue. What it would do is use Taxpayer funds to guarantee loans that Fannie and Freddie would buy -- loans that are currently not selling into CDOs because no one wants them.

This is Bernanke's attempt to recreate a market where there is not a natural one, putting taxpayers on the hook for potential problems that real, prudent investors don't want to risk.

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