Mortgage Rate News

In a move that has me, and many others, scratching our heads, the government is easing regulations on Freddie Mac and Fannie Mae, two home mortgage lenders and servicers with government charters. The regulations, as the New York Times reports, were put in place for very good reason:

Rocked by accounting scandals, Fannie and Freddie had been under tight government regulation. The administration had maintained for years that Congress ought to curtail the companies from expanding their investment portfolios for fear that any significant trouble encountered by the companies could prompt a costly bailout. As part of the agreement, the regulator, the Office of Federal Housing Enterprise Oversight, or OFHEO, said it expected to lift an array of conditions imposed on the two companies as a result of the accounting problems.

Now the view is changing. Despite the general rule that more capital should be on hand for better stability, the government is allowing Freddie Mac and Fannie Mae to “branch out” further, in effect giving them the green light to assume riskier loans in higher amounts and with more “creative” financing methods.

The idea is to stimulate the mortgage market by allowing a greater number of home mortgage loans to be financed. I’m not sure this is a good idea. After all, lax standards and mortgage lenders getting a little crazy with large loans and “creative” financing is why we’re having this problem in the first place.

Continuing to uphold a debt based economy only contributes to long term instability overall. Perpetually sustained growth is a pipe dream. It’s an impossibility. A recession is a natural part of the economic cycle. Perhaps we should allow this correction to do a little more in evening things out. And then, in the end, we may end up with a more stable economy.

Tags: stimulate mortgage market, regulations Freddie Mac Fannie Mae, home mortgage loans, mortgage loan blog,
home mortgage financing, debt based economy, mortgage lenders