Many ways to replace Fannie and Freddie: Bernanke

[The Northerner]

WASHINGTON (Reuters) – It should be possible to create a U.S. housing finance system without the need for potentially risky entities like government-sponsored mortgage finance agencies Fannie Mae and Freddie Mac, Federal Reserve Chairman Ben Bernanke said.

Bernanke, in a letter to Representative Marcy Kaptur that was released on Friday, said the housing finance system should ensure successful funding of mortgages and support a secondary mortgage market even during times of financial stress without creating firms that pose systemic risk.

"There are a variety of organizational forms that might replace Fannie Mae and Freddie Mac that could likely provide mortgage credit without the systemic risks associated with these institutions in the past," he said in the letter.

Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), which own or guarantee around half of U.S. mortgages, were taken over by the federal government at the height of the financial crisis in 2008 as loan losses mounted. The firms were shareholder-owned but operated under a congressional charter, which led investors to believe the government would bail them out in a crisis.

The companies do not lend directly to home owners, but buy mortgages from lenders and repackage them as securities or hold them in their own portfolio as part of a system that was seen as ensuring widely available funding to support homeownership. Fannie Mae and Freddie Mac operate under a mandate to promote affordable housing

The firms remain under government control, and the Obama administration is only just beginning to grapple with how to overhaul the housing finance system.

Read more: http://news.yahoo.com/s/nm/20100806/bs_nm/us_usa_fed

[Warpy]

1. They also privatize the profit

as well as socialize the losses. They need to be renationalized as the first step of any reform.

They worked well until people were thrown out of work. What they're seeing now is a wave of unemployment fueled defaults, not the result of poorly considered loans defaulted due to buyer's remorse, something the mendacious right would like us to believe.

[Po_d Mainiac]

4. Nope. They just entered the game late...ever hear about "Countrywide?"n/t

[blue97keet]

2. Has'nt it been shown that the entire securitization process

is a tangled mess of high risk incentives, conflicts of interest and blinding complexity no matter who or what the securitizer is?

[Statistical]

3. Nothing wrong with securitization per se.

If a loan performs it performs regardless of who the owner(s) is.

If a loan defaults it defaults regardless of who the owner(s) is.

Lending standards were the problem. Not just "loan for the poor" but loans to people who didn't exist, loans to people with no income, loans to people already struggling under debt, loans to people with short history in high risk small business, etc.

Lending standards need to get even tighter.

a) 20% down. It was common for a long time. It is called saving.
b) Good credit, steady income, stable employment. Yeah all that boring banking stuff that fell out of favor.
c) Sane to debt to income standards. No exceptions.
d) Only two legal loans. 30 yr fixed, 15 yr fixed. Period. Nothing else is legal. Period.
e) Ownership. The originator is required to retain an nontransferable 5% interest in any loan originated. Period.