Freddie Mac announces the end of Greed
Financial news is hot right now, what with the stock market plummeting, or ‘correcting itself’ as the more bold would proclaim. You may have heard that Freddie Mac has decided they will not purchase certain subprime mortgages. They have a proper position paper, the normal “we’re doing this to look after you,” B.S., but more honest was an interpretation I found.
The satirical interpretation was written by someone named Michael Shedlock, who says he is editor of something called the “Survival Report,” a publication about stocks and the economy. I am not familiar with his work, and never heard the name until I ran across this. His global economics blog says he also does some work for Motley Fool, which is plenty of reference for me. For any of you who aren’t familiar with Motley Fool, it is a place for investing tips, and is pretty interesting, and often funny. See here for their web site.
Mr. Shedlock, or “Mish” as he calls himself, has done a great interpretation of the Freddie Mac announcment. He says in part:
Uncle Fred is pleased to announce that effective September 1, 2007 we will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. Our goal is not really to protect consumers from default, but rather our goal is self preservation. We want to protect ourselves against massive losses that other lenders are seeing.
Second, the company will limit the use of low-documentation underwriting for these types of mortgages to help ensure that future borrowers have the income necessary to afford their homes. Why we allowed such loans in the first place can be summed up in one word: greed.
We will implement these new investment requirements for mortgages originated on or after September 1, 2007 to avoid market disruptions (such as a sudden hit to loan volume) which might cause investors to panic.
The entire ‘announcement’ is worth reading. It can be found here. Mish’s blog even includes the actual Freddie Mac announcement for comparision.
I read more of the blog you cited. That is a terrific swat at an industry that really deserves it. Mish points out that numerous BS claims by the subprime industry that has created a huge mess that we are all going to pay dearly to clean up. They profited by luring sub-prime borrowers into debt they really couldn’t afford by using a host of deceptive claims.
Now, thousands (millions?) of borrowers are teetering on the edge, the dream of home ownership likely to vanish if interest rates don’t magically stay low. When that happens (I don’t have the confidence to say “if”) we will see new large swaths of foreclosed housing cutting through neighborhoods. Then, people will wonder what happened, blaming the victims of mortgage scams.