The Wall Street Journal notes that the Obama administration has used the federal government’s bailout of mortgage giants Fannie Mae and Freddie Mac to do the exact opposite of what the federal government claimed it would do when it took them over a year ago. It took them over in the name of winding down their risky loan portfolios, so they would stop running up losses at taxpayer expense. But the Obama administration is deliberately making them run up huge losses to help out irresponsible borrowers who potentially might default on their mortgages. “In today’s Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money.”
Over Christmas Eve, the Obama administration not only lifted the $400 billion limit on the bailout (and showered their CEOs with cash), but also ended “a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion.”
The Obama administration is now deliberately making them lose money: “the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. . . Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses.”
“Much of this is being done off the government books,” to hide the costs of the Obama administration’s record deficit spending. And their CEOs are being paid a fortune, the Journal notes, because “Fannie and Freddie are exempt from the rules” limiting compensation at private banks.
But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”
And banks will now be pressured to make even more risky loans. The House has approved Obama’s proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” The Community Reinvestment Act was a key contributor to the financial crisis. But the Administration’s proposal would direct the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.
Another $75 billion in taxpayer money is already being wasted on mortgage bailouts that economists and real estate experts say is actually harming the economy and the real estate market.