Volcker: Fannie & Freddie a Bad Idea

Tuesday, February 23rd, 2010 | Uncategorized

From The Huffington Post:

Former Federal Reserve Chairman Paul Volcker said the nation’s home mortgage market is in trouble and will have to be “reconstructed.”

“It’s totally dependent, heavily dependent on government participation,” Volcker said Friday in an interview with Bloomberg Television. “It shouldn’t be that way. That’s going to have to be reconstructed.”

The federal government was responsible for up to 95 percent of all new home mortgages in the fourth quarter of 2009, said Guy Cecala, publisher of Inside Mortgage Finance, a leading industry publication.

“Anyone who looks at the numbers says, ‘My God, look what it’s come to,’” Cecala said in an interview Friday.

While Volcker hopes the nation’s home mortgage finance system lessens its dependence on taxpayers, Cecala said it’s going to be nearly impossible for a significant change to take place over the next year.

“We can’t,” Cecala said. “It certainly can’t change in 2010. It’s like saying we’re going to make some improvements in the Titanic after it’s hit the iceberg.”

There were $390 billion in new mortgage originations, including home equity lines, in the last quarter of 2009, according to Cecala’s firm. Excluding the home equity lines, Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration stood behind up to 95 percent of those mortgages. Just a few years ago the government was responsible for about 40 percent of all new home mortgages, Cecala said.