FANNIE MAE CRIME

Those who follow the MainStream Media in the northern part of Virginia know that the list of unethical practices and potential crimes at Fannie Mae over the past 10 years is growing and the topic of editorial and news analysis outrage.

MainStream Media has not yet noted that the real crime at Fannie Mae (and Freddy Mac) is that these federal agencies have catalyzed, leveraged and exacerbated the creation of the wrong size houses in the wrong locations. They are major contributors to the Shelter Crisis. See our column “Solutions to the Shelter Crisis,” 24 July 2005.

The actions of Fannie Mae have generated profits for financial institutions, land speculators and the raw land development industry. They have created inflated home prices and paper profits for house speculators. The modest increase in home ownership – a good thing for some – is off set by the drastic, long-term economic impact of dysfunctional settlement patterns – a very bad thing for everyone.

EMR


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5 responses to “FANNIE MAE CRIME”

  1. Ray Hyde Avatar
    Ray Hyde

    “Accounting for only 18 percent of all homeowners in 2000, it has been estimated that minorities, many of whom are immigrants, were responsible for 40 percent of the net increase in homeowners between 1990 and 2000 (Simmons 2001). The Joint Center for Housing Studies (JCHS) (2003) further projects that minorities will account for 64 percent of household growth from 2000-2010, and they will increase their share of homes owned by 39 percent by 2010.”

    “Ninety-six percent of immigrants live in urban areas compared to 78.4 percent of American-born individuals. However, recent census data also indicate that more and more immigrants are becoming suburbanites, often bypassing ‘traditional’ inner-city reception neighborhoods for well-developed (or “urbanized”) suburban locations with good access to employment and schools. In only 32 of the 100 largest metropolitan areas did the growth of the immigrant population in the central city exceed that in the suburbs during the 1990s. If we look at aggregate immigrant population growth in the 100 metropolitan areas, the central city areas grew by 21.7 percent compared to 63.7 percent for suburban areas (immigrant population growth at the metropolitan level for the 100 cities was 54.8 percent).”

    “From Homeland to a Home: Immigrants
    and Homeownership in Urban America”

    Demetrios Papademetriou and Brian Ray

    No one wants to defend questionable accounting practices at the government sponsored lending agencies, whether they involve housing or not.

    But to suggest that
    Fannie Mae is committing a crime by helping others generate profits seems to be more than a little stretch.

    If, as the quotes suggest, one of the largest groups of new homeowners are more and more opting to settle away from the urban hubs, and particularly from the historically immigrant hubs, is that because of Fannie Mae’s activities, or is it that Fannie Mae’s activities follow the market?

  2. Jim Bacon Avatar
    Jim Bacon

    Ed was clearly using “crime” in the metaphorical sense when referring to its impact on housing. By bundling and packaging mortgages on a large scale, and imposing uniform standards on the kinds of houses and mortgages it deals with, Fannie Mae gives a huge, government-subsidized advantage to certain categories of houses — particularly single-family dwellings in the suburbs. As I understand it, it’s much more difficult for a property owner in an old, urban neighborhood to qualify for the Fannie Mae treatment.

    That’s just one of the many hidden subsidies that have promoted suburban development over urban re-development.

  3. Ray Hyde Avatar
    Ray Hyde

    Actually Fannie Mae has programs to promote inner city housing, I believe. But a fist time home buyer there may be looking at $150,000 vs $100,000 elsewhere.

    No matter what policies Fannie Mae has or doesn’t have, that is a big hit to overcome. It is one reason that immigrants are increasingly choosing suburbs. That, and schools. In fact, the following quote is from a FM document and it espouses many of your ideas, first they talk about infill and then easing up on current zoning requirements……

    “Finally, the stock of available housing could be expanded by rehabilitating residential properties that are boarded up or abandoned, by subdividing large units into two or more smaller ones, and by creating auxiliary apartments in existing single- amily homes. It is important to note that higher-density development — and, in fact, any major new construction project in an established neighborhood — has the potential to generate serious neighborhood opposition.

    Therefore, one of the important roles that city government can play is to help build public understanding and support for new residential development, including higher-density development in suitable locations.”

  4. E M Risse Avatar
    E M Risse

    Jim:

    You are right about bundling, etc. Fannie Mae and Freddy Mac have helped over heat the housing market pricing the bottom 3/4 of the population out of shelter.

    Their lower income porgrams are a smokescreen for what makes they (and others at the top of the food chain)the profits to pay those bonuses. The net impact is exacerbating dysfunctional settlement patterns.

    In the current context, I guess the use of “crime” is “metaphorical” but if society understood as much about creating sustainable human settlement patterns as we do human health (and that is, by far, not a much as there is to know) it would be a crime to exacerbate dysfunctional patterns and denisties of land use.

    EMR

  5. Ray Hyde Avatar
    Ray Hyde

    What is that you have against profits? You frequently say that urban dwellings are the most valued. Doesn’t that imply that they have generated the most profits?

    I imagine that when you sell your home, you will waqnt the best price. Does that make you a speculator?

    As I understand it, Freddie Mac buys mortgages, and bundles them together in packages. The packages are designed to spread the risk. For example, you would hate to own a bundle of mortgages that were all from new orleans.

    Reducing the risk makes the mortgages attractive as an investment, and these investments are purchased by people who have aneed to park money for a time, such as retirement funds. In other words, virtually everyone that isn’t livingin an all cash economy, has a stake. I suppose you could call that the top of the food chain, if you include everyone with a savings account, 401k, retirement plan, etc.

    If Fannie mae didn’t buy the mortgages, then local banks would have to hold the notes in their portfolio. Since many local economies generate enough to keep going, but not a lot of excess, those banks would not be able to make many loans.

    Instead, they get an infusion of new money by selling the note to fannie mae, and they can now be ready to make a new loan when a neighbor needs it.

    That infusion of new money comes from those “on the top of the food chain” from across the country, so the supply of money is pretty much assured, unless other investments become more attractive. But for a reasonably secure investment, it is hard to beat mortgage backed securities. People hate to lose their homes.

    The local bank is free to make local loans that meet special local needs. But if the loan to value ratio is not there, or the income to loan ratio is not there, they may have difficulty selling the note.

    Theoretically, one would think that if urban homes are valued more highly, they would be easier to loan against. But things that are valued the most also have the farthest to fall and are less likely to rise further. Also, it is harder to meet an acceptable loan to income ratio.

    Faced with variety of loans that are available to purchase, fannie mae selects what it thinks are the best ones, that can most easily be marketed as securities (to the top of the food chain).

    But since the money comes from us, and it is loaned to us, against purchases that are freely made in the market place, and which are the single largest source of wealth for most people, where is the subsidy? It’s not coming from Fannie mae.

    Sure, Fannie Mae is a federally chartered corporation, and enjoys some tax and competition advantages. But frankly, it is had to point to any operation that does not enjoy some kind of support from the government. Trucking companies running on roads that are pretty near free, for example,

    All of those public/private partnerships now being touted as the answer to our road problems will be operating in a similar government favored environment, so we can’t very well use that as a strw dog.

    I don’t see any crime here, metaphorical or not. The article I quoted above predicted the problems that the District is now facing in its goal to increase the population by 100,000. They would have to allow subdividing houses, they would have to reduce the number of teardowns, they would have to use up current open space, and they would likely face opposition at every turn.

    And it is not just the District. Increased density in Fairfax elicits acerbic responses from TMT. And increased density is being debated everywhere, no matter how low it is at present. This is exactly the position of PEC in itsw fight to save open space – don’t increase the density.

    And here is a quote from the central virginia real estate blog on the topic of incipient growth in C’ville – “UVA08 is exactly on target. Fairfax County is “built out.” The NOVA poulation is exploding and there is no place to go but west into Loudoun and Prince William. Young upwardly mobile families have populated Loudoun straining our infrastructure including roads, schools and other public services. There are not easy answers. How we ultimately deal with these issues will define “smart growth” – good or bad.”

    As far as I can figure out someone and sometimes everyonone thinks every form of growth anywhere contributes to dysfunction, and yet virtually everyone continues to invest in the system that provides the highest rate of home ownership in the world.

    Sounds pretty much like a free market: no one is forced to lend, no one is forced to invest, no one is forced to buy, and yet most everyone does.

    Where is the crime in that?

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