Godzilla & Rodan To Eat 2d Mortgages?

WSJ’s “Return of the Housing Godzillas” is a sequel to the Swamp trying again to expand its control over us chumbolones by floating the idea of authorizing Freddie Mac to also “insure” secondary mortgages. “What could possibly go wrong?”

As the paper’s editorial board explained: “Housing godzilla[s] Fannie Mae & Freddie Mac [Rodan] are threatening the countryside again, and better hide the children. It’s not enough that taxpayers stand behind their $7.5 TRILLION in mortgages. Now Freddie wants taxpayers to back second mortgages – i.e., de facto consumer loans.”  And, of course, the editors suggest, it is only a matter of time before Fannie “copies Freddie’s idea.” If that happens, a Bank of America research team, they note, “estimates that homeowners could extract about $1.8 trillion more in equity.”

So what, you ask? As always, the WSJ warns, the “likely losers would be taxpayers … One risk is that home prices fall, causing some homeowners with second mortgages to default. An equity buffer helps reduce defaults, which is one reason foreclosure rates remain near record lows.” Then again, “If homeowners with higher credit scores consolidate their consumer loans into second mortgages, riskier borrowers would make up a larger share of bank portfolios. Banks would then hold fewer high-performing loans to offset losses from those that default, which would increase the risk of failures. And guess who stands behind the big banks? Taxpayers.” In short, as Fannie & Freddie would play financial poker even more than it already does with taxpayers’ money, it’s not too much of a stretch to see another “Great Recession” possibly play out ala the 2008 Global Financial Crisis (GFC).

Davd Soul