It is simple. Because there is none and anyone who says there is a viable alternative is in a fantasy land.
There is no other way for the home finance markets to function. Without the GSEs, there is no Liquidity. Same goes for FHA and Ginnie Mae.
How long before a bank runs out of money if there is no liquid Secondary Market for $500,000 and up mortgages? Not very long.
The Fannie model worked for over 50 years. And the Freddie Model worked for decades.
The problem was with management, not the fundamental model. There is simply no viable alternative model. And the politicians know it and cannot offer one. What you have are people who are totally ignorant to what the Secondary Market is, liquidity, and mortgages. And it's all politics. The GSEs made it possible for people to purchase homes for decades and decades. And like Lehman, Bear, and Wachovia, etc, they got into trouble due to mismanagement. The model will work once again if they go back to the basics. And by the way, it was the American people who lied on all those bilions and billions of "stated income" "stated asset" loans but nobody has the Cajones to say it was the American People who lied. And it's all politics.
How do those crafty Canucks do it?
That’s no need for Freddie now that they’re no longer GSE’s but wholly controlled by the US Government. It was not until Fannie was spun out into a quasi-private enterprise that Congress saw fit to create Freddie as “competition” for Fannie.
Kill Freddie, roll all their operations into Fannie and call it done.
Fannie and Freddies fatal flaw was exposed in 2008. A bank owned and run by politicians will always collapse in a heap of corruption. It only took 10-15 years after the virus of CRA was injected into it for TSTHTF.
There is nothing new under the Sun. To believe that somehow our present Gov’t and crop of bureaucrats have outsmarted the market and human nature to invent a way to give everyone homes - and you are the one living in fantasy-land.
These two entities could easily be shifted over to the private sector and save the taxpayers billions. The only argument that hold water to keep the Federales in this is because of the guarantees. I am sure something can be set up to get around that in the way a private model is configured.
When I bought my house in the early 80s, I made a down payment in excess of 20% of the purchase price. The house was mortgaged as security; and I had a job that paid me about five times the annual payment required to service the loan.
Are you suggesting that there would have been no competition for my business had there not been Federal Government guarantees?
ML/NJ
Ofcourse there is an alternative-the free market!
Truly you are both a pioneer and a legacy in the sex toy industry.
Complete nonsense. The free market is perfectly capable of loaning money. In fact,they’ll do a much better job than the government, because decision making will be based solely on whether the borrower can/will pay back the money.
Freddie and Fannie are what crashed the economy. They allowed trillions in bogus and worthless mortgages to be issued that could not have otherwise been issued without government guarantees.
NOt sure if you are just trolling FR or not....
There are alternatives to FHA and F&F,
you could change origination laws and regulations easily to reflect Canadian, Danish or Belgian mortgage laws.
you could simply change FHA loans to reflect default risk due to income loss through UE or illness. Even adding points to require UE and disability insurance for FHA loans and conforming loans backed by F&F would do wonders.
you could turn to a soviet system.
you could enter into a system as described in the book 1984 where incomes dictate class and geogrpahic segregation in housing.
you could dismantle F&F and shift the assets to a truly Federally backed Agency or Department.
the Federal government could also implement onerous regulations on the residential and multifamily construction industry that would require Federal approval for all new building projects.
The fundamental models of F&F haven’t worked since the real median wages of US households stagnated starting in the mid 1970’s.
The F&F model doesn’t work during periods of stagnant new household formation.
The F&F model doesn’t work now due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and shifting job markets.
The very conceptual framework of the “home ownership society” has failed, F&F were the major policy tools of the American regime to enable the entrapment of American wage earners into geographic cordons...
F&F only worked due to the labor market conditions in post-WWII America and the utter devastation in Europe’s industrial capacity. As the US continues to lose overall world marketshare in industrial production there will be ever diminishing needs for property values to be priced at levels above the immediate price point availability to the working wage earners in the country.
F&F only worked due to the labor market expansion of he baby boomers, if the RRE market stagnates due to a loss of FHA backing, it allows the younger generation to buy homes at market clearing prices. F&F as it stands now is eating the young in this country.
F&F created the second largest financial bubble in the history of the world and was a contributing factor for the largest financial bubble in the history of the world. The entire bubble paradigm that F&F rode in on has turned to a new synthesis that looks very much like the problems seen in Japan.
Houses made of tickytack is no way to finance an empire.
Canadians get along fine without anything like Freddie and Fannie. In their best years their positive effect was estimated to be something like 1/4 of 1% of a savings on mortgage rates for qualifying mortgages. There was no reason to have taxpayers subsidize those mortgages then and there’s even less reason for the programs now that they are such costly failures.
Sure there is , and I'll give you one.
I would base the entire mortgage industry on REITs. REITs are Real Estate Investment Trusts, corporations with a special tax classification where the income is derived from real estate. For example, REITs include many of those large apartment complexes in many cities. Investors receive a return through dividends in the company, whose income is derived from rents, etc from the real estate.
A REIT can own homes and rent them out. It can also own mortgages. So lets build a housing model on that.
One of the fundamental flaws in the old mortgage industry is that no one involved in the entire chain of financing has any real interest or capacity to handle the underlying asset. The only people who want the houses are the people who bought the mortgages. So when houses get foreclosed, someone in the bowels of the financing industry gets stuck with a house they didn't want.
A REIT can fix this, because a REIT actually would have an interest in the home. If a person with a mortgage forecloses, they can simply move out and the REIT takes the house and rents it to someone else. Or, they could even keep the same person in the house, but take their equity and convert them to renters with maybe a lower rent. Finance become vastly simpler when the lender has a use for the collateral asset.
REITs can prevent bubbles. How? When a prospective homeowner works with a REIT to buy a house, the REIT would be lending money based on what they think they could get for the house in rent on the open market, not what they think the people in their office can pay, or what they can get by tossing it to the securitization machine at Fannie Mae. This puts a lid on speculation. If they person in their office forecloses, and the REIT takes possession, they need to be able to rent it out at near the same income. If some wanted to overpay for a house, they can, but it would be through a larger down payment, not through a larger loan.
So, this dramatically simplifies the industry, but still provides financing, and even keeps housing affordable, which was a Fannie and Freddie mandate, until they lost focus and fed the bubble.
By “work”, do you mean by keeping housing prices inflated? Cheap and easy credit, combined with giving to unworthy borrowers prevents a necessary correction in the market.
Yep. Something has been around for 50 years. Therefore, its existence is essential and life would have been grim without it. There is just no alternative that would have been acceptable. As my sister used to say a lot when we were kids: “dumbest thing I’ve ever heard”.
Why can’t I go to the Fed directly and get some phony bologna fiat money, say $300,000, at 0.2% interest? Eliminate the middle man.