What is going to happen with Fannie and Freddie?

We certainly have a dilemma with those two don’t we. We (us through our government) allowed both companies to do what they wanted with very little oversight and now that it back fired they want us to bail them out. We are being told that if we don’t it will send our economy into depression.

How did this happen?

I believe it started years ago. Back in the mid 90’s qualifying for a mortgage became easier. The rules were eased and home sales increased. Then huge national builders and some savvy large local builders figured out that owning your own mortgage company or having one in your back pocket would increase the approval rates and home sales. This occurred slowly and as it became more prevalent the rules were eased even further. Why, because everyone was making a lot of money. So what really happened was greed.

I had an associate of mine, who was living in an apartment at the time; bring me all the mailings he received from builders. Over a two year period from 2003 through 2005 he received on average 58 builder mailings each month. All the mailings sold the same thing buy a home with no money down, monthly payments below his rent, and credit did not matter. The message was if you had a pulse you could buy a home.

Could anyone with a pulse buy a home back then? Let’s look at some of the mortgage options and you decide.

- One day out of bankruptcy not a problem you could buy a home.
- Home foreclosed on. No problem you could buy a home.
- No income? We’ll use stated income and you can buy a home.
- Credit score 580, no money down? No problem you could buy a home.
- How about this finance 125% on a refinance of your home.

There were more programs that would horrify you but were used regularly just a few years ago.
What is going to happen with Freddie and Fannie? It looks like the We the People will bail them out. What’s up in the air? Our elected officials really want to run Freddie and Fannie. As bad as Freddie and Fannie have been run of late it is still better than the government runs any business they have tried to run. God help us if they take over.

In my next post I’ll talk about some of the items that caused this problem that are still being used today.