Sep 15, 2008

Who Will Benefit From Housing Agency Takeover?

A couple of months before the government takeover of Freddie Mac and Fannie Mae, Congress passed a new law providing financial backing for these quasi-governmental agencies, straight out of the U.S. Treasury. The fact that they have now been taken over means very little, except that a new crop of mis-managers will take over operations at somewhat lower compensation rates.

According to a plethora of financial market pundits, the takeover will "calm financial markets" and hasten the day when real estate values can be determined with some amount of certainty. As long as prices keep falling, sales will not keep up with inventory. Undoubtedly true. However, perhaps the time has come when America really is bankrupt in deed, if not in name, and it will just take a few respected leaders (possibly a presidential candidate or two) to call out the naked emperor. In the meantime, we can expect to be treated to a series of "light at the end of the tunnel" statements by the "powers that be", all designed to calm the savage consumer beast and keep the big money in America instead of some other, more financially stable, country.

Although the real estate fiasco can be hard to understand, a brilliant article in the Sunday, September 14th San Francisco Chronicle pulls it together about as well as anybody can. The most important point in the article is that the new housing recovery law will likely only benefit the most irresponsible of the impacted homeowners -- this because of the abililty of the lenders to pick and choose which loans they will cash out at 90% of the home's current appraised value. While this approach may help the bottom lines of the various banks that got caught shorthanded, it does little for our sense of fairness. Or, to put it another way, it makes the old saw "let no good deed go unpunished" a little less funny in the case of the millions of homeowners who have struggled to stay current on their mortgages but who will now be deprived of relief because their loans aren't bad enough to justify the lender taking a hit.