Created in 1938 by the Federal government to stabilize the mortgage market during the Great Depression, the Federal National Mortgage Association, or Fannie Mae, was privatized in 1968. Now this past weekend the Federal government once again took control of the mortgage company. The New York Times has decided the bailout plan for Fannie Mae and Freddie Mac, it’s brother corporation, is a great and wise step publishing an editorial September 8, that lauds the plan as, “…a reasonable and reassuring move”. The take on the story at ABC News featured the drop in rates expected as a result of the bailout. Over at MSNBC the story leads with the bailout being, “good news” for prospective borrowers.  Despite the spin by the media, I doubt I am the only one concerned about the Federal government’s plan to bailout the mortgage companies. 

I have not heard much talk about what this deal is going to do to the national debt, but I doubt it will be good. My wife and I own our home. We bought and sold property during the boom years in the housing market. We didn’t purchase using an adjustable rate mortgage. We put everything we had into our first house. We didn’t refinance pulling massive equity out of the property. We make our payments. In other words, we made responsible decisions. Now we are told we have to pay the price for the irresponsibility of others? And that is exactly what this bailout means. When they say government backed it really means taxpayer backed. 

I personally know folks who have lost their homes because they bought more than they could really afford. I personally know folks who lost their homes because they refinanced with adjustable rate mortgages to draw equity out of the property to finance a lavish lifestyle. What is worse is that they knew exactly what they were doing. They were taking a gamble that the market would continue to climb and they would be able to refinance to a fixed rate conventional mortgage in a few years before their rates reset. Well, sometimes when you gamble, you loose, but in this case the nation is left holding the marker for their bad bet. Why? Because the government decided to bailout Fannie Mae and Freddie Mac, that’s why. I don’t consider that a good deal.

What amazes me most of all about this story is that the former CEO of Fannie Mae, Daniel Mudd, and the company’s executive leadership is not under criminal investigation. Nor do I hear anyone in Washington calling for such. If I did what it appears the folks at Fannie Mae did I am fairly certain I’d be facing jail time. Incredibly, the talk is rather about how much compensation Mudd will receive under his severance package. Unbelievable! Everyone knew Fannie Mae was deeply troubled. Even after Treasure Secretary Henry Paulson was given greater authority over the mortgage giants by Congress in July, investors were still leery of putting capital into the firms. Yet, as recently as July 18, 2008 there was Daniel Mudd, being interviewed by Judy Woodruff saying, “Fannie Mae is very financially sound.” Yet it seems it was common knowledge that business was not good in the strange, quasi-governmental world of Fannie Mae. Where is Christopher Dodd (D-CT) the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs? He’s busy taking shots at the Bush administration.   Where is the Department of Justice? Did I mention former FBI Director, Louis B. Freeh, is on the Fannie Mae Board of Directors?

One reason, perhaps, we aren’t hearing much out of our Congressional leaders (as if we have any) about this mess is that Fannie Mae and Freddie Mac have spent tens of millions of dollars in lobbying efforts. According to Bloomberg.com Fannie Mae employed 20 in house lobbyists and 48 outside firms. Furthermore, Fannie Mae and Freddy Mac have contributed $19.5 million to federal campaigns over the last 20 years. So I am not surprised that no one seems to be calling for a criminal investigation. 

So, here we are in 2008, some 40 years after Fannie Mae was privatized and Freddie Mac was created, again nationalizing the mortgage business in America. Maybe it will help in the long run by stabilizing the mortgage market and maybe it will hurt by sending the Federal government and the economy into a deficit tailspin. The only thing of which I’m sure is that barring real reform, at Fannie Mae, Freddy Mac, and the Federal government, the American public will be the looser.