Fannie Mae and Freddie Mac

by Olivia LaRosa

We are now in the process of nationalizing two public corporations. Fannie Mae and Freddie Mac are a horrifying example of what happens when government functions are “privatized”.

FM (short for Fannie Mae and Freddie Mac, which are short for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation were formed to support the home mortgage market.

Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America.

Fannie Mae served commercial banks, and Freddie Mac soon followed. Freddie Mac served the Savings and Loan industry (remember them?). In the mid-1970s, the character of these institutions changed because their charters changed. They were then in the beginning stages of privatization.

They were mostly “deregulated” in the 1980s, which is a euphemism for privatization, which is a euphemism for giving away public goods to unaccountable corporations without any benefits to taxpayers. Taxpayers are STILL paying the bill for the rape of the saving and loan industry in the 1980s. John McCain was one who assisted the rape, as part of the “Keating Five.”

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When I entered the banking business in 1971, each bank branch kept its own home loans on the books at the branch where the home loan was made.

When I entered the banking business in 1971, each bank branch kept its own home loans on the books at the branch where the home loan was made.

Yes, you read that twice. I did not want you to skim over it (for you skimmers).

When I went to the bank, I saw the loan officer who made my home loan twice a week. He knew what I looked like, and what my husband did for a living. He knew when we were going to have a child. He saw me every time I came into the bank and made a deposit.

In other words, this person was, if not a friend, an intimate acquaintance.

Now, lenders are completely divorced from the human being who is taking out the mortgage. And investors are lured by fictitious entities like “mortgage-backed securities” and the people who made a mint by “securitizing” the family home loan obligation. Clever Wall Street minds figured out a way to “securitize” the mortgage markets. When you hear the world “securitize”, just run like heck. Do not invest in securitized instruments. At their most basic, they are scams designed to wring excess profit from financial instruments that do not usually yield excess profit by bundling together individual items and assigning risk factors to the pool of items. Usually, the risk factors are understated and the potential profit is overstated.

Examples of securitized investments include junk bonds and derivatives, both of which led to devastating losses for families in the last two decades. Now, we are witness to the biggest failure of securitization yet, and it will cause us to have to turn Fannie Mae and Freddie Mac into public service institutions, which they should have been in the first place. Now, our grandchildren will be paying the bill for all those unrecoverable privatized profits.

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Before you read this, please take a moment to reflect upon what you thought that Fannie Mae and Freddie Mac meant.

Freddie Mac Corporate Governance

We are committed to sound and effective corporate governance practices. We believe these practices are fundamental to maintaining a strong relationship with our stakeholders, reinforcing confidence in Freddie Mac’s leadership, and achieving our mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets. We review and update our governance practices from time to time to be consistent with our shareholders’ best interests and with applicable requirements.

FOCUS | Mortgage Giant Overstated the Size of Its Capital Base
http://www.truthout.org/article/mortgage-giant-overstated-size-its-capital-base
Gretchen Morgenson and Charles Duhigg, The New York Times: “The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced on Sunday, came together after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.”

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