clipped by: Victoria Barret clipper's remarks: Fan & Fred pass some cheap money to home buyers, but the majority of it goes to banks. Why is the U.S. government subsidizing lenders? Instead, pass along the savings directly to homeowners. Clip Source: online.wsj.com In addition, the assumption that U.S. taxpayers would stand behind Fannie and Freddie's bonds allowed them to get by with far less capital than their private market competitors (less than 1% capital to assets versus the market standard of 6% to 8%). Fannie and Freddie successfully fought back, arguing that they pass on to borrowers most of the savings from their below-market-rate prices for capital. But that is debatable. Most economists believe borrowers get at most 10 basis points of Fannie and Freddie's built-in market advantage of 25 to 40 basis points. That credit, if set to equal 10 basis points of the total mortgage rate, would be worth $400 a year on a $400,000 loan, about equal to what Fannie and Freddie provide indirectly to homeowners, and with considerably less noise and risk. Don't hide a housing subsidy by outsourcing government policy to a semi-private, for-profit corporation that exposes the taxpayers to $5 trillion in potential liabilities. Tags: housing , fanne mae , freddie mac ...
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