[nvskibum]

The fundamental problem with the mortgage market is that making mortgage loans is risky. Making lousy mortgage loans is even riskier. When things get bad, they can get bad suddenly for all real estate loans in short order. The interest rate on mortgages needs to be high enough to cover the risk--and the profits in good times need to be available to absorb the losses in bad times. Rates should be, maybe, 7,8,9%? But that is politically unacceptable--people like Barney want "cheap" mortgages.

If mortgage rates are decreed to be cheaper than what the market would otherwise demand, somebody needs to bear the risk. The risk cannot be made to go away by any form of hand-waving by the government.

Freddie and Fannie were lucky for many years until they rolled a "7". They were a way to hide the risk (they were very complex organizations, hard to understand), but the risk was always there. Because they were so large, everybody knew that the taxpayers ultimately would be on the hook.

If Freddie and Fannie are abolished, the risk will be formally placed on you and me as taxpayers. But it has always been there--the taxpayers got lucky until 2007.

This is the real issue--how should our economy absorb the risk of mortgage lending. Coming up with the best answer will not be easy. This is particularly true if the profits made in good times are allowed to be separated from the losses in bad times.

[BooBoo1000]

The two Mae's worked very well for many years. It wasn't until Bill Clinton Barney Franks, and Senator Christopher Dod decided it would be good business and lots of votes, to reduce the requirements for home loans.There was nothing wrong with the system, just the Democrats tinkering with it that caused all of the trouble.