Is it Time to Reform Fannie Mae and Freddie Mac?

Fannie Mae was created in response to the Great Depression when the economy made it difficult for homeowners to meet mortgage terms. Fannie Mae purchased and securitized FHA and VA mortgages to inject liquidity into the mortgage market.

The problem we are faced with today is not that different from the Great Depression with one exception and that is the amount of debt both Fannie Mae and Freddie Mac own.

Together, Fannie Mae and Freddie Mac own more than $5 trillion U.S.  mortgages which is almost half of the total  $12 U.S. mortgages.

 The amount of debt Fannie Mae and Freddie Mac own is not sustainable for the Federal Government, the U.S. economy, or individual tax payers.

That is why the Financial Regulation Bill did not discuss reforming Fannie Mae and Freddie Mac at this time.

 In the near future, we will need to address reforming Fannie Mae and Freddie Mac.  But how do we do this.

In my opinion, we need to have a healthy secondary mortgage market. One that is assuming limited risk to investors.

We need money to flow from Banks to homeowners, from Investors to Banks back to homeowners again.

I think this can be done without the government involved.

We just need better oversight and confidence in our rating system so investors can purchase mortgage backed securities based on the merit of the mortgage itself not in the bubble of the housing market.

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