Mortgage Crisis Loosens Housing Industry Ties with GOP
The long-standing relationship between banking executives,
mortgage investors, and the Republican Party is showing signs of strain as they begin to differ on government involvement in the housing industry in the aftermath of the mortgage crisis.
As Republicans push to scale back government backing of home mortgages, industry execs fervently reiterate their beliefs that the government needs to have a permanent role in guaranteeing home loan mortgages.
Many Republicans believe that Fannie Mae and Freddie Mac played major roles in creating the housing bubble that sparked the mortgage collapse, even though their portfolios of sub prime loans faired far better than those of private issuers during that time period.
The desire to have government play a smaller role in the economy has some congressmen pledging to nay-say any effort to rewrite the nations' laws for housing finance laws. Though President Obama has preached a desire to protect consumers and taxpayers from big business failures, these lawmakers insist that rewrites would leave taxpayers shouldering the financial burden of housing industry losses.
Fannie Mae and Freddie Mac are responsible for bundling mortgages into mortgage backed securities and selling them off to investors. This process protects loan lenders from defaulting homeowners and is what allows loan lenders to offer 30-year mortgages and sub prime loans. On the other end, investors are also protected from defaulting homeowners by a government guarantee.
Without government involvement loan originators would shy away from offering mortgage loans during tough economic times and investors in securities would demand higher interest rates on mortgage loans. The result of complete privatization in the housing market would be a much smaller and much more expensive housing market.
Even though Republicans, like Jeb Hensarling of
Texas, promise to push for the privatization of Fannie Mae and Freddie Mac and make them similar to the
FDIC, critics believe that government involvement in the firms is here to stay.
By: Javi Calderon
