While many governmental acts have greatly harmed our economy, this page will concentrate on Fannie Mae which was created and is still heavily controlled by the government.
While government regulates all financial institutions significantly and to their detriment, Fannie and Freddie are Government-sponsored enterprises, thus they have a business model directed by the government. They were bailed out (2008) when they were managed with abject incompetence and were told to enhance the policies that destroyed the value of the company. Moreover, their actions harm millions of individuals directly with the liberal policies of predatory lending, sold as ‘Fairness”, and was a major factor the financial crisis of 2008.
Federal National Mortgage Association (FNMA) Click to see a interactive chart of their stock price, looking back up to 5 years.
This heavily erratic stock price shows ranges from $0.09 to $5.44, thus a wildly unstable ‘penny stock’ in one year and heavier losses in the five year range. We are talking over 99% loss.
Fannie Mae Has very nice Sounding Goals
“As the leading source of residential mortgage credit in the U.S. secondary market, Fannie Mae is supporting today's economic recovery and laying the foundation for a better housing finance system.”
However their actions are very harmful in their attempt. They claim “We guarantee and purchase loans from mortgage lenders to ensure families can buy homes, refinance, or rent a good home.”
The problem with this is giving up on good underwriting standards. Over the years, banks have determined what underwriting standards were important to making good loans. Good loans are not just good for the banks and those that invest in the bank, they are vitally important to the families that borrow the money. Lower foreclosures rates for banks means less families being financially devastated.
Fannie Mae, along with many other government Acts, Agencies and Programs have forced many banks to lower underwriting standards, thus harming those poorer people the bill intends to help.
Franklin Raines earned $90 million in salary and bonuses while he was head of Fannie Mae.
Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. In the event that there was some sort of financial collapse within either of these companies.
A List of Things that Did Great Harm
“The regulatory issues in the 1990s will not be limited to safety and soundness, but will increasingly emphasize fairness: whether or not banks are fulfilling the needs of their communities.” Lawrence B. Lindsey Member Board of Governors of the Federal Reserve System Address to the
California Bankers Association May 11, 1992.
Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution
to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent
of the creditor’s net worth in class actions. Regulation B Equal Credit Opportunity 12 CFR202.14(b).
Underwriting Standards and practices Page 14
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Since the global financial crisis in 2008, the U.S. government, through Fannie, Freddie and the Federal Housing Administration, has backed about 90% of all new mortgages.
This is not simply free market. This creates moral hazards in the attempt to make things equal. This harms the poor the most!
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