Tuesday, November 29, 2011

Tennessee Senator Corker Re-Writes History of Mortgage Companies in the Washington Post

Maybe That’s the Post’s Function in Life, to Give Republican Senators a Reputable Forum to Misrepresent

Because the facts and history of the once government owned, once private, and now once again government owned mortgage companies like Fannie Mae and Freddie Mac does not support Republican and Conservative dogma, those Republicans and Conservatives who write about them have to re-invent that history to conform to their cherished incorrect beliefs.  So as a public service here is the briefest possible history of government involvement in the mortgage insurance business.

  1. Starting in the 1930’s the Federal government sponsored a number of agencies who mission was to guarantee home mortgages to facilitate and stimulate the residential construction and home ownership sector.

  1. These organizations were phenomenally successful, and home construction and home ownership boomed in the post WW II era.

  1. Two of these agencies, Fannie Mae and Freddie Mac were privatized, with implicit government guarantees of their debt.

  1. The agencies that remained government owned, FHA and Ginnie Mae continued to be sound, properly run businesses.

  1. Non-existent or lax regulation of Fannie Mae and Freddie Mac, particularly during the Bush administration lead to their using their government guarantee of funding to buy and guarantee bad mortgages, so much so that the Bush administration had to take them back into government ownership.

  1. The Obama administration has reformed their practices and they are now making money from their loans of recent years.  They are still working through the bad loans made under the Bush administration.

There you have it, privatization and lax regulation lead to a disaster, costing taxpayers hundreds of billions.  But Republicans cannot let this truth be known, it contradicts what they want people to know.  So Tennessee Republican Senator Bob Corker uses the Washington Post to present the fantasy side of the argument.

But we have come to a point where continued inaction impedes the ability of the private market to take over a function the government has completely mismanaged. We must move beyond Fannie and Freddie, immediately.

Uh, no Mr. Corker.  Fannie and Freddie were completely mismanaged under private ownership. Under public ownership they, along with other agencies have done what they are supposed to do.  Mr.  Corker then goes on to talk about managing interest rate risk and says this

This leaves the lender with the tricky job of managing an asset-liability mismatch. But the private sector has proved capable of the task. In fact, the development of the risk management infrastructure to deal with this challenge remains a great accomplishment of modern finance.

Really, that’s what he says.  Which must explain why the banking system and Wall Street has done so well for the past five years.  But then Mr. Corker moves on to credit risk

Having “crowded out” private investors by charging an insurance premium that was too cheap, the GSEs are saddled with $5 trillion worth of bad credit. This is a tragedy of our own making. During the boom years, the GSEs’ affordable housing goals were coupled with a Congress and an administration that saw only the bright side of rapidly increasing homeownership rates. That meant that as housing prices began to spike, it was impossible to make credit slightly more expensive. Without countercyclical market mechanisms able to operate naturally, as housing prices went higher, the GSEs simply raced each other to lower guarantee fees, out of fear that they might lose business from mortgage originators such as Countrywide and Washington Mutual. The result, we now know, was a government-induced bubble followed by a painful collapse.

Wow, can anyone successfully count the number of false statements in that quote.  See one reason for the collapse is that these private companies made credit way to expensive; after luring unqualified home buyers into the system with low “teaser” rates these buyers were unable to make payments when rates reset to much higher levels.  Oh yes, Countrywide and Washington Mutual, how did those private companies do?  Wa Mutual failed, and Countrywide was bought by Bank of America and it is now doing its best to sink that bank entirely.

So thanks Washington Post, for giving a Republican the forum to write total mis-information and fabrication about the home mortgage debacle.  But don’t expect thanks from Republicans and Conservatives, because every now and then you also allow someone to write correctly about things, and that sort of thing is what Conservatives hate. And even if you devoted your editorial pages entirely to promoting right wing Conservative myths, you still would not be successful.  The Wall Street Journal editorial section will always do that better, they are pros and you are just a pretty good amateur.

1 comment:

  1. I have a question regarding mortgage. If i buy a home of $250,000 detached / semidetached and 8,000 down payment then how much mortgage will i have to pay every month? Please tell me clearly.