Government becomes subprime lender

Stephen Meister:

President Obama and Democrats in Congress haven't moved to stop subprime lending -- they've just taken it over.

They've created a federal subprime-lending monopoly by seizing control of the financial apparatus -- Fannie Mae, Freddie Mac and the Federal Housing Administration -- and lending 100 percent of the home price to borrowers who can't afford it.

Private lenders can't make these loans -- they need to get paid back.

On Sept. 9, I reported that Fannie had forged a subprime partnership with state housing-finance agencies called "Affordable Advantage": Fannie agreed to buy loans from housing-finance agencies for which the buyer puts down $1,000 or less -- in at least one case, just 67 cents.

On Sept. 15, the House Government-Sponsored Enterprises Subcommittee held a hearing on Fannie and Freddie. Since these two GSEs have cost the taxpayers $148 billion (so far), Reps. Spencer Bachus (R-Ala.) and Judy Biggert (R-Ill.) took their regulator to task over Affordable Advantage.

Edward J. DeMarco, head of the Federal Housing Finance Agency, sheepishly replied, "This one got away from us" and then promised "you won't be hearing about additional programs such as this."

But DeMarco also testified that Fannie's contracts to buy these zero-down loans from HFAs don't expire until next March -- and he can't tell Fannie to stop.

There is more.

This administration has failed to deal with the root cause of the financial debacle and is in fact feeding it. I am surprised Republicans are not making more of an issue of this in the fall election. Perhaps it is because the Democrats have become such a target rich environment that there are too many things to criticize.


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