Fannie, Freddie and the Housing Bust

The Wall Street Journal reports:

Our current subprime-lending crisis seems to have initiated the latest credit-tightening drive. Is it a coincidence that both of these tightening periods in the credit cycle were set off by mortgage lending issues?

I posit no, and lay the blame at the feet of Fannie Mae and Freddie Mac (and their congressional cronies), whose unchecked growth into second mortgages, subprime loans and many other assets -- not to mention their continued creep into the upper echelons of the home-mortgage industry through their current lending limit of $417,000 -- has pushed other mortgage-market participants further out on the risk spectrum in search of a livelihood.

To put this lending limit issue into perspective, and thus to understand how much of the mortgage-market share is now touched by these two out-of-control entities: The average U.S home costs in the vicinity of $200,000, and with the exception of the San Francisco/Bay Area and Manhattan markets, most homes fall well within the values to qualify for the Fannie Mae/Freddie Mac subsidy. Recent estimates are that 50% of all mortgages originated are now guaranteed or owned by Fannie Mae or Freddie Mac.

It is thus incredible that Fannie Mae recently petitioned Congress to increase its approved lending limit so that it can "better help the market during this period of distress." Not only should this offer be summarily rejected, these entities also need to be shrunk considerably and through proper regulation be returned to serving their original purpose. As long as Fannie Mae and Freddie Mac can utilize their government-agency status to tap the debt markets, they ought to limit their business activities to those that serve a public need. If they want to compete with the private sector, they should not have this taxpayer-subsidized funding advantage. Until those in Congress are willing to serve the best interests of the public that elected them, the price that our economy and society will pay will only increase over time.

Fascism.