Freddie Mac Tries to trash Homeowners rather Man up to the Reality that they caused the Whole Thing

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population. In contrast homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

For those who have not suffered any disruption in income and have a longer time horizon, simply continuing to pay the bills might be best. Over time, recovering house prices and declining mortgage balances likely will close some, if not all, of the equity gap. According to the Federal Reserve, while the housing bust wiped out $8 trillion in home equity, $1 trillion came back in 2009. The point here: time might be your best ally.
In the end, borrowers considering a strategic default should recognize the damaging impact their actions can have on others. While a personal financial strategy might argue for a strategic default, entire communities and future homebuyers can be harmed as a result. And that is why our broader social and policy interests will be best served by discouraging strategic defaults. He acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.
Don Bisenius Executive Vice President Freddie Mac

Let's consider the Politics?

"Home mortgages have been a political piñata for many decades," writes Stan J. Liebowitz, economics professor at the University of Texas at Dallas, in a chapter of his forthcoming book, Housing America: Building out of a Crisis.

Liebowitz puts forward an explanation that he admits is "not consistent with the nasty-subprime-lender hypothesis currently considered to be the cause of the mortgage meltdown."

In a nutshell, Liebowitz contends that the federal government over the last 20 years pushed the mortgage industry so hard to get minority home ownership up, that it undermined the country's financial foundation to achieve its goal.

"In an attempt to increase home ownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s," Liebowitz writes. "The decline in mortgage underwriting standards was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists."

He continues, "Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise."

"As home ownership rates increased there was self-congratulation all around," Liebowitz writes. "The community of regulators, academic specialists, and housing activists all reveled in the increase in home ownership."

An article in the Los Angeles Times from the late '90s praised the sudden surge in home ownership among minorities, calling it "one of the hidden success stories of the Clinton era."

John Lott, a senior research scientist at the University of Maryland, however, claimed in a Fox News article yesterday that the success came at a great price.

According to Lott, the Federal Reserve Bank of Boston produced a manual in the early '90s that warned mortgage lenders to no longer deny urban and lower-income minority applicants on such "outdated" criteria as credit history, down payment or employment income.

Furthermore, claims Lott, Fannie Mae and Freddie Mac encouraged and praised lenders – like Countrywide and Bear Stearns – for adopting the slackened policies toward minority applicants.

"Given these lending practices mandated by the Fed and encouraged by Fannie Mae and Freddie Mac," writes Lott, "the resulting financial problems for financial institutions such as Countrywide and Bear Stearns are not too surprising."

Liebowitz' contention that lenders were under pressure to loosen their standards for racial and political goals was confirmed years ago by the companies at the heart of today's crisis: Fannie Mae and Freddie Mac.

A New York Times article from Sept. 1999 states that Fannie Mae had been under increasing pressure from the Clinton administration to expand mortgage loans among low- and moderate-income people and that the corporation loosened its lending requirements to comply.

An ominous paragraph of the article reads, "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."

Liebowitz likewise predicted in a 1998 paper the risk of sacrificing sound financial policy for social activism.

"After the warm fuzzy glow of 'flexible underwriting standards' has worn off," Liebowitz wrote, "we may discover that they are nothing more than standards that led to bad loans. … It will be ironic and unfortunate if minority applicants wind up paying a very heavy price for a misguided policy based on a badly mangled idea."

And though some have speculated that lenders in the '90s dove into sub-prime mortgages in an effort to gouge new markets, the president and chief operating officer of Freddie Mac in 1999, David Glenn, confessed his company was pushed by a federal agenda.

"The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership," Glenn said in his remarks at the annual convention of the Mortgage Banker Association of America.

"The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories," Glenn said. "Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low- and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets."

In that same year, Freddie Mac warned of the logical pitfalls of pursuing loans on the basis of skin color and not credit history.

The Washington Post reported that the company conducted a study in which it was found that far more black people have bad credit than white people, even when both have the same incomes. In fact, the study showed a higher percentage of African Americans with incomes of $65,000 to $75,000 had bad credit than white Americans with incomes of below $25,000.

Such data demonstrated that when federal regulators demanded parity between racial groups in lending, the only way to achieve a quota would be to begin making intentionally bad lending decisions.

The study, however, came under brutal attack in the U.S. Congress and was ridiculed with charges of racism.

A few years later, when Greg Mankiw, chairman of President Bush's Council of Economic Advisers, voiced a warning about weakened underwriting standards, Congress rebuffed him as well.

The Wall Street Journal quoted Congressman Barney Frank, D-Mass., in 2003 as criticizing Greg Mankiw "because he is worried about the tiny little matter of safety and soundness rather than 'concern about housing.'"

Frank, chairman of the House Financial Services Committee, rejected a Bush administration and Congressional Republican plan for regulating the mortgage industry in 2003, saying, "These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis." According to a New York Times article, Frank added, "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

The federal regulator of Fannie Mae and Freddie Mac ordered the two mortgage-finance giants to de-list their common and preferred stock from the New York Stock Exchange, the latest example of how the mortgage giants are shedding their ties to private ownership.

The move came one day after the NYSE formally notified the government that Fannie Mae no longer met listing standards because its shares had fallen below the $1 share-price threshold maintained by NYSE Euronext.

The U.S. government has ordered mortgage giants Fannie Mae and Freddie Mac to delist from the stock market, a federal agency said.

A spokeswoman for the Federal Housing Finance Agency, the companies' regulator, said the notice from the NYSE prompted Wednesday's decision to voluntarily delist.

The FHFA said it chose that route rather than to present a "cure," or plan to bring the companies' shares back above $1, because it couldn't be sure that such a plan would work or that it would be in the interest of the government and shareholders to try to keep prices above the $1 threshold.

Now lets go back to Don Bisenius comment about home owners trashing their neighborhoods, He acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.
Don Bisenius Executive Vice President Freddie Mac

Freddie Mac and Fannie Mae trashed the country and now tries to lay the blame on the homeowner for a housing bust they caused wiped out $8 trillion in home equity?
If the home equity had not vanished we would not be talking about this!

Left and Right Politics aside, both are guilty was hell!

So who is the jerk in this story The Homeowner? or the Fannie & Freddie?

In the latest disaster that cannot be managed- The BP Oil Disaster

Anyone with any common sense at all could do better than the Government - My worst supervisor at UPS could have handled the oil disaster with ease, He/she would have contained the problem immediately, Manned up to handle the problem and worked 24 hours a day for a week to keep it from growing, and oil never would have touched land or if it did it would minimal. What did the government do?

Failed to act immediately.
Failed to get all equipment in place to neutralize the oil. (last count I heard 33 countries offered assistance - on Day 3 - about day 70 we accepted a tanker with the diffusion capability)
Let it get so big it is impossible to control.
I guarantee you this disaster could have been contained if private enterprise and the states would have been unleashed rather than stifled.
Oh yeah I forgot blame Bush. can't forget that, If Obama did not Have Bush to blame he might have to do something!

Whomever you choose to blame - The Government cannot run anything so bend over and hold your ankles this is not going to be fun!

Health care is the next debacle!

Michael Mack
An American