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Fannie and Freddie's Role in the Housing Crisis

Myth 1: The government-sponsored housing finance companies Fannie Mae and Freddie Mac had nothing to do with the housing crisis. They were simply innocent bystanders caught in the crossfire.

Fact 1: Fannie and Freddie contributed to the housing crisis by making it easier for more people to take out loans for houses they could not afford. Beginning in 2000, Fannie and Freddie took on loans with low FICO scores, loans with low down payments, and loans with little or no documentation.

Myth 2: Fannie and Freddie's role in the housing market increased home ownership, especially for first-time buyers and lower income earners.

Fact 2: The small increase in home ownership rates were temporary and artificial, driven by unsustainable incentives. In the best case scenario, Fannie and Freddie may have increased the home ownership rate from 63 percent to 69 percent, but now the rate has fallen back to 66 percent. Moreover, Fannie and Freddie did not make housing more affordable and even priced many first-time buyers out of the market.

Myth 3: Fannie and Freddie are essential for maintaining a working mortgage market. Without them, interest rates will increase and home ownership will plummet as more people are priced out of the housing market.

Fact 3: Interest rates are likely to go up. Yet it is not clear what impact this will have on home ownership rates. In the 1980s, interest rates on the average 30-year mortgage were significantly higher, yet home ownership rates were almost the same as they are today.

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Added: Mar-4-2011 
By: jbpnw
In:
News, Other
Tags: fannie mae freddie mac, home ownership, housing crisis, economy
Views: 6903 | Comments: 23 | Votes: 0 | Favorites: 2 | Shared: 0 | Updates: 0 | Times used in channels: 1
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