The Obama administration has been being criticized for not taking a stance against Fannie Mae and Freddie Mac, the mortgage giants, who have cost tax payers nearly $145 billion since the government stepped in and took over in September of 2008. In answer, the white house announced today that they will have a meeting next month to look at viable options to help fix a broken mortgage industry.
The date is set for August 17th and the Treasury Department in Washington will “bring together leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders for an open discussion about housing finance reform,” the administration said.
The two companies combined capitalize the mortgage industry, owning or guaranteeing $5 trillion in home loans. That accounts for 31 million home loans across the country, nearly half of all mortgages in the US. The problem is that both companies are in way over their heads in bad loans as a result of the housing industry collapse.
The companies’ demise comes from years, during the housing boom, of making loans too easy to qualify for. They made too many risky home loans and with the economic downturn paid dearly for that mistake. Loan defaults and home foreclosures coupled with falling home values turned Fannie Mae and Freddie Mac from successful companies to overnight failures. In 2008, the government stepped in and took control or both companies would have gone under.
“For decades, Fannie Mae and Freddie Mac privatized their profits while ultimately putting taxpayers at risk for losses,” Goldstein said. “This type of ‘heads private shareholders win, tails taxpayers lose’ system of misaligned incentives makes no sense for the nation.”
This conference is a step in the right direction, but not soon enough for some critics. Mainly republicans have been quick to criticize and say not enough is being done. Some have even said the Obama administration has downright failed to deal with the mortgage industry and its shortcomings.
Treasury Secretary Tim Geithner says, “The Obama Administration is committed to delivering a comprehensive reform proposal that protects taxpayers, institutes tough oversight, restores the long-term health of our housing market, and strengthens our nation’s economic recovery.”
“We’re not going to preserve Fannie and Freddie in anything like the current form,” Geithner said. “We’re going to have to bring fundamental change to that market.”