Monday, March 26, 2012

Crony Capitalism at its worst:
Mortgage giants Fannie Mae and Freddie Mac are being pushed to reduce borrowers' mortgage balances in order to shield U.S. banks from taking losses on distressed housing debt, the companies' regulator said in a Financial Times interview published on Sunday. "If you do principal forgiveness, who is it benefiting? ... Doing principal forgiveness is what would protect the big banks," said Edward DeMarco, the acting director of the Federal Housing Finance Agency.

DeMarco argued that writing down the principal on first mortgages would amount to a transfer of taxpayer wealth to the biggest U.S. lenders, whose "second mortgages" are normally subordinate to the primary mortgages backed by Fannie Mae or Freddie Mac.

Some officials in the Obama administration, the Federal Reserve and Congress have called on Fannie Mae and Freddie Mac to write down the value of mortgages they own or guarantee as part of an effort to help the U.S. housing market recover from a deep slump that saw one third of property values wiped out since 2006.

Fannie Mae and Freddie Mac need to be cut loose.
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