Where Is The Financial Reform Of Fannie And Freddie?

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Noticeably absent from the financial reform bill passed yesterday is any reform of perhaps the biggest culprits of the mortgage crisis - Fannie Mae and Freddie Mac. The politicians have been talking about getting back the TARP funds from the banks but as far as I know they got back a nice return from all the banks but not from Fannie Mae and Freddie Mac. In fact, all the bank stocks are doing reasonably well now but Fannie and Freddie...not so much. And who knows how much more money Fannie and Freddie will need down the road. So what is the logic in all of this? Someone please explain this to me.

Just last week (July 8) I was watching CNBC's Maria Bartiromo interview
Alan Greenspan at the Aspen Ideas Festival and for the first time I
heard a high ranking government official (former) acknowledge the role
that Fannie Mae, Freddie Mac, and affordable housing goals played in the whole financial crisis.
Here is what was discussed. Note that because of the conversational nature of the interview it's a bit hard to follow:

First, Alan Greenspan explains that the crisis was caused by two
factors: undercapitalized financial institutions and fraud.

Maria: Well that's not being addressed in the reg reform
bill, nor is Frannie and Freddie, by the way, which is also a major
absentee

Alan: Fannie and Freddie is really one of the critical causes of the problem.
It wasn't really until September 2009 that I could say that and the
reason essentially is that in 2009 Fannie Mae reclassified a huge amount
of its so called prime security portfolio and made it sub prime. And all
of this stuff got securitized and the demand for Fannie and Freddie -
because HUD's affordable housing goals were rising very significantly -
the only way they could meet the affordable housing goals was by
wholesale purchases of the debt of low and moderate income homeowners.
And so what they bought was mortgage backed subprimes in volumes that
amounted to close to half of all the net issuance in 2003 and 2004. That
essentially broke the back of the market, and a previous subprime market,
which was frankly a functioning market. It was small. It was those
homeowners which were between...which couldn't afford the 20% down payment
but could afford the monthly service payment. They were doing fine until
the pressure from securitizers on the mortgage lenders became intense
and they all went to adjustable rate mortgages. And that was the seeds of
the crisis.

Maria: This is a huge point obviously. Do you think that a change - a
reclassification of Fannie and Freddie should be in the reg reform bill?

Alan: I think the answer is yes. The basic problem that everyone has is right
now our home mortgage market is essentially government guaranteed. There
is very little that is not. And if you begin to do what is required to
do to Fannie and Freddie it will obviously disrupt that.

I think this says it all. So where is this needed reform of the biggest culprits?

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    After 20 years in the corporate world and running an Internet company, Gary started Lucid Realty with his partner, Sari. The company provides full service, while discounting commissions for sellers and giving buyers rebates.

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