September 7 – Fannie Mae & Freddie Mac

ryanBell Ringers, Economics(BR)

Sept. 7 – Fannie Mae & Freddie Mac


On Sept. 7, 2008, the Federal Government took over Fannie Mae and Freddie Mac.

The Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are two “government-sponsored enterprises” designed to expand the market for mortgages by buying loans from lenders, and repacking them into mortgage-backed securities.

This system worked so long as economic decisions were driving who they bought from and sold to. But in the 1990s and 2000s, under presidents Clinton and Bush, politicians began engaging in social policy by encouraging and then requiring lenders to loan more and more money to riskier and riskier borrowers.

In 2008, the underlying economic reality that you can only pay back loans that you can afford, finally kicked in. Fannie Mae and Freddie Mac were bailed out by the taxpayers, as part of a major intervention in the economy. Many people lost homes they shouldn’t have owned in the first place, and others, who had been prudent all along, saw their own home values plummet.



Questions:

The mortgage crisis of 2008 was caused by the actions of government officials, politicians, bureaucrats at government-sponsored enterprises, bankers, speculators, and naïve home buyers. The bill for their mistakes is being paid by taxpayers.

  1. In a situation like this, who should pay? Why? How would you go about collecting from them (other than taxpayers)?
  2. Should the government use things like home mortgages to promote social policies (such as increasing the rate of home ownership among the poorer segments of society)?

Image Citation:

30, Aug. 2018 Cartoon regarding Fannie Mae and Freddie Mac [Digital image].  Retrieve from <google.com>.