Why Does Congress Ask Fannie and Freddie to Guarantee Bad Loans?

Here is a news item which clearly falls into the “believe-it-or-not” category: two members of the U.S. Congress, including the chairman of the House Financial Services Committee have publicly urged Fannie Mae (FNM) and Freddie Mac (FRE) to begin to (once again) intentionally provide government guarantees for bad loans.

Naturally, this is not how this request was phrased by the two politicians. Instead, they urged Fannie and Freddie to “relax” their “recently tightened standards”, according to a Reuters article. To be precise, at a time when the U.S. economy is shedding jobs at a pace greater than at any time in (at least) 70 years, and with all categories of U.S. mortgages simultaneously experiencing record rates of defaults, they want Fannie and Freddie to revert to the same behavior which helped to create the U.S. housing “bubble” (the largest asset-bubble in human history).

As regular readers will recall, this comes at a time when Fannie and Freddie are likely to require $100's of billions in additional government hand-outs – next year alone (see “Fannie and Freddie to need $100's of BILLIONS in 2010”). The U.S. Office of Budget and Management has already estimated that Fannie and Freddie will require $92.2 BILLION in additional hand-outs in 2010.

However, their estimate was based upon fraudulent government “statistics” and the ridiculous premise that the U.S. economy is about to commence a “recovery”. Insert realistic data and projections into those parameters, and a much more probable estimate is that Fat Fannie and Fumbling Freddie will require three times that amount.

These two political “experts” have warned that by setting more responsible standards for their loan-guarantees, Fannie and Freddie are causing “a real chill” in the U.S. condominium market. In other words, to try to repair the damage caused by the implosion of the U.S.'s Ponzi-scheme economy, they want Fannie and Freddie to engage in more Ponzi-like behavior.

As further evidence that the politicians, “regulators” and banksters have learned absolutely nothing from their reckless greed and systemic fraud (see “U.S. bank-fraud SYSTEMIC and INTENTIONAL - William Black”), at the same time Reuters put out a 2nd article reporting that Citigroup (C) has temporarily “suspended” its mortgage securitization unit for continuing to package (and sell) fraudulent mortgages (i.e. “liars' loans”). These “mortgage products” were missing property appraisals and/or employment documentation, and this one unit “produced” half of Citigroup's $115 billion in mortgages last year.

The natural question to ask is: with the U.S. economy about to start a “recovery” in one week's time (according to that learned sage, “Helicopter” Ben Bernanke), why are U.S. politicians so adamant that Fannie and Freddie lower their lending standards?

Surely, in an “economic recovery” the creditworthiness of borrowers should be expected to rise up to the new lending standards set by Fannie and Freddie – rather than needing to lower standards in order to stimulate buying.

It's almost like these politicians secretly believe that Bernanke's 5th prediction of a U.S. “economic recovery” will turn out to be no more valid than his first four predictions.

And what are we to make of this latest scandal at Citigroup? Surely a company which only months ago bragged about its return to “profitability” should not need to engage in more mortgage-fraud to pad its bottom-line – unless the “profits” which Citigroup claims to be producing are the result of yet more, U.S. mortgage-fraud.

Unfortunately, Citigroup has refused to comment on this scandal, so questions about their latest example of scam-banking remain unanswered.

U.S. propaganda-outlets have been crowing for months about how “affordable” U.S. houses have become, and have been proclaiming for almost as long that “demand” is improving and the market is close to (or already at) a “bottom” (see “Bloomberg's Sunday propaganda: U.S. housing has bottomed”).

Again, this begs the question: why revert to extremely dubious lending standards to prop-up a market where demand is “improving” and homes are “extremely affordable”?

The reality is that there is no possibility of a U.S. “economic recovery”. The U.S. housing market is still plummeting downward, with no hope for a (real) bottom for at least another five years – and most likely much longer (see “Distressing news about Distressed U.S. properties”).

Meanwhile, with yet another example of the continuation of the same scam-banking which caused all these problems, the Obama regime is poised to produce a set of extremely diluted “reforms” for the U.S. financial sector – which essentially do nothing other than preserve the status quo (see “Obama's financial reforms: let the Fox guard the Hen-house”).

The overall message is clear from both the banksters and the politicians: it's “busines as usual” for the U.S. financial crime syndicate.

Dislcosure: I hold no position in Citigroup, Fannie Mae or Freddie Mac.

Comments

[jack kreg:]

of course the socialist Dems want the US taxpayer to back home loans to voters in their districts, they want to purchase their re-election with tax payer back home loans.
Who will qualify;
-anyone with 3% down payment, income verification, probably not.
-how about illegals, not even a citizen, anyone can qualify.
thats the socialist model, loved by so many Dems.

Vote out the socialist Dems in 2010, it the only hope for a recovery of our great American Capitalism.

Jun 26 11:02 AM

[greedcanbgood:]

Over all a good article. I get weary of "the sky is falling" assertions (e.g. "The reality is that there is no possibility of a U.S. “economic recovery”. The U.S. housing market is still plummeting downward, with no hope for a (real) bottom for at least another five years – and most likely much longer (see “Distressing news about Distressed U.S. properties”).") however.

Institutions have failed as a result of the old practices, I find it difficult to believe that the free market (or at least as free as the Obama Administration will make it) will quickly fall into the SAME death-spiral. Something different perhaps but certainly not the same one.

Jun 26 11:21 AM

[JackEllis:]

Why? Because politicians are great at grandstanding but they're often not very thoughtful.

Jun 26 11:42 AM

[FDNY RET:]

What have you got against naming the known arsonist who burned our house down and didn't answer for it, wanting to light up what's left??

----------------------... FRANK------------------------

Jun 26 02:29 PM

[the gerald:]

i think the request was to leave condo financing in place if 51% of the condo is sold, instead of raising the requirement to 70%. not a really terrible thing in these times.

you have yellow journaled and thrown everything including sink in a pathetically ugly article blaspheming frank.

long:fannie & freddie pfds. rbs,db,

the gerald

Jun 26 03:58 PM

[fireball:]

business as usual on steroids.

Jun 27 03:46 PM

[ExaminerB:]

As a bank examiner who has looked at many a loan for condominium's, I can assure you that I would: 1) never purchase a condo in a development that had fewer than 70% of the units sold, 2) that I would never purchase a unit unless I carefully scrutinized the financial condition of the association and that I would 3) carefully scrutinize the financial condition of the builder and his and payments to subcontractors. What Barney (less than Frank) is doing reminds me of his past actions that contributed to the demise of Fannie and Freddie. (Remember that these organizations were pressured to relax secondary market standards and that their purchase of essentially subprime loans caused their losses). As a regulator who has watched this mess unfold, I can assure you that Barney Frank's actions are detrimental to the unsuspecting consumer of housing who cannot assess the risks associated with condo's. Disgusting!

Jun 28 12:51 AM

[norom:]

hmmm....it takes me more than a week to pay all my bills and cover personal expenses....I don't see how the whole country can do it either.

I think the majority of the pressure through both lobbyists and the people in general is to try and maintain price levels without directly fixing prices. This falls in line with the FED mandate to control inflation and deflation.

The problem, is that nobody knows what sustainable prices are. I mean, really. Borrowing money enables consumers to buy things at a higher price level than they would if they paid cash. Now firms, instead of increasing allocative efficiency, simply increase prices through terms of finance.

That puts the US at an extreme competitive disadvantage.

Jul 02 01:22 PM