Thursday, June 25, 2009

Barney Frank pours gas on the smouldering Real Estate market

It is widely reported that a major contributor to the current economic mess was the collapse of the US (and other) housing market. A number of factors lead to that collapse including unscrupulous lending, relatively low interest rates at the Federal Reserve, buyers wanting and trying to buy more than they could possibly afford, and the injection of capital into the real estate markets by the two Government Sponsored Enterprises (GSE) Fanny Mae and Freddy Mac.

The size of each contribution to the problem can be debated and is. However, it is inescapable that FM/FM have played a significant role. Various sources show that FM/FM hold an enormous portion of the US mortgage market, something around 50%. Further, during recent decades, they have explicitly and deliberately sought to buy sub-prime mortgages with targets around 50% of their annual total. The scale of this GSE-created market for sub-prime loans is obvious.

In the wake of a collapsed US real estate market, where it was clear that sub-prime loans (loans made to uncreditworthy borrowers), our wizened leaders in Washington want to immediately start re-inflating the bubble. According to Reuters, Representatives Barney Frank, the chairman of the House Financial Services Committee is pressuring the two GSE to relax their lending standards. I wonder who does he know that is having trouble selling their condo?

Absolutely beautiful.
We've obviously learned nothing about what got the real estate markets in this mess to start with.

No comments:

Post a Comment