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Fannie Mae and Freddie Mac, operating entirely as an arm of the government, entirely dependent on the credit of the government, and getting huge subsidies and favors from the government, have begun making large profits, all of which they are paying to the US Treasury. Speculators in the old, junior preferred stock and common stock of Fannie and Freddie are objecting that this is unjust.
Nationally, homes look overpriced, but there can be great variations on a regional or even neighborhood level. To gauge the sustainability of home prices within a metropolitan area generally, I suggest looking at measurements of market fundamentals such as unemployment, job growth, income, rental values, population levels, and mortgage rates.
Loan risk is at a higher level than is conducive to long-run market stability. Despite frequent assertions by the National Association of Realtors and other interest groups that the national credit box is too tight, the facts indicate it is loose by historical standards for prudent lending and is getting looser.
Five years after the government bailed out Fannie Mae and Freddie Mac by covering their combined $187.5 billion debt, taxpayers are about to be made whole, and record profits are set to stream in as far as the eye can see. But in a bizarre twist, the government may be poised to commit what some critics say could be the largest securities fraud in history.
Mortgage loans are only as sound as the practices used to underwrite and originate them. Transparent and objective measures of mortgage and home-price risk needed to evaluate and manage housing risk.
The two most obvious Systemically Important Financial Institutions (SIFIs) have not been so designated, and do not appear even to be under consideration. These are Fannie Mae and Freddie Mac. Is the FSOC asleep or what?
Once again, the National Association of Realtors and community advocacy groups call for a loosening of what they term “tight credit” conditions. Yet, in December, nearly one-half of all home purchase loans had down payments of 5 percent or less, and nearly one-quarter had debt-to-income ratios exceeding 43 percent.
The National Association of Realtors (NAR) reported today that existing Home Sales for December came in at 4.87 million. However, home sales are being helped by loose lending standards and interest rates still near their lowest level in decades.
The fate of Fannie Mae and Freddie Mac will continue to be debated through 2014, but fundamental structuring will once again not be achieved.
In this conference, veterans of the Iraq and Afghanistan wars, mental health and disability experts, and an economist will discuss current hurdles to rehabilitation, and suggest alternatives that could more effectively expedite the reintegration of veterans into their families, communities, and workplaces.
Please join Representative Randy Forbes (R-VA), AEI, the Heritage Foundation, and the Foreign Policy Initiative for a timely discussion on the 2014 QDR and the future of American defense strategy in an era of constrained budgets.
This event is livestream only.
AEI’s Philanthropic Freedom Project welcomes Bill Gates for an exclusive event at AEI.