At what point did we all forget the “Private Mortgage Market” was the machine that brought on the subprime crisis? Folks, this is the same machine that perfected the NINJA loan (No Income, No Job, No Assets), and whose financial creativity gave us the pick-a-payment loan, option ARMs, and the very impressive Negative Amortization loan. Yet this is the market we expect to provide the solution? This is the market that is going to replace Freddie and Fannie?
Don’t you all remember the constant stream of MBS downgrade news (More than 30,000 tranches downgraded in early 2008)? Moodys? S&P? AAA to Junk in one shot? Billions of dollars in write downs? Bear Stearns? Credit Default Swaps? Structured Finance? ABS? CDOs? No? Nothing? We don’t remember any of that?
You’ve all forgotten the major players in the non-agency (private) market? Should I remind you?
Those don’t ring a bell? Good, we’ve all forgotten. Now lets hand this same private market the keys to the entire US mortgage market. It’ll end better this time.
But wait! There’s more! They’ll also get the backing of the full faith and credit of the United States of America (‘s taxpayers)!
When another participant asked what “fills the gap” if Fannie Mae and Freddie Mac, the government’s mortgage finance companies, are eliminated as proposed, the president endorsed the Corker-Warner plan, a proposal he obliquely referenced in his Tuesday housing speech. Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., have proposed that Fannie and Freddie be replaced by a new institution called the Federal Mortgage Insurance Corp., which is intended to provide a guarantee against massive losses in the mortgage-backed securities, but play a more a more limited role in the overall housing market.
“We’re confident that the private market can step in, do a good job, and the government can be a backstop … but it’s not the dominant player,” said Obama.