Gee, everyone has cars, does that mean that auto manufacturers are all doomed? . No it just means the market is mature and their profit margin is very very small. Its a false analogy. Car companies are distinct from banks. Why don't you give me an analogy involving banks. The Kuwati oil bubble and the S&L's spring to mind. Fannie risks are publicly held but their profits are private. What's your motivation to reduce risk? None, because it interferes with profits. Oh sure, you have Congressional oversight. Whoop-te-do.
And by the way, 70% homeownership isn't important to FNMA. No, it's how many homes need loans that matters. Even if America reached 100% homeownership, there would still be a demand for new home loans as people moved up, moved down, moved away, etc.
100 % don't want to own a home even if they were cheap as dirt, which they aren't. I'm beginning to think 70% is abnormal. Unless, of course, its being used as a speculative instrument or a tax shelter(another key distorting factor).
Yes, homes are used as tax shelters, but that's been going on for decades and is unlikely to be fueling any modern pricing bubble.
Don't get me wrong, home prices may decline, especially in the highest-priced, highest unemployed regions.
It's just that the problem would have to be vastly larger than that to bring down FNMA.
Heck, FNM stock may even continue to decline back to more normal valuations, but I don't see TEOTWAWKI from any realistic scneario save one (financially), and that scenario involves changing the rules of the game at halftime...