Daniel Wiser reports for the Washington Free Beacon disturbing reports surrounding Fannie Mae and Freddie Mac.
Critics warn that government agencies are making the same mistakes that led to the economic downturn of 2008.
Federal agencies have made a series of recent moves that could precipitate another housing crisis similar to the one in 2008, experts say, again threatening the stability of the entire U.S. economy.
Housing regulators and other agencies have announced rulings and proposals in recent weeks that would lower credit and lending standards for home mortgages. Subprime or low-quality mortgages that defaulted in 2008—a majority of which were backed by the government housing giants Fannie Mae and Freddie Mac—were a significant contributor to the economic downturn.
Additionally, Fannie and Freddie currently hand over most of their earnings to the Treasury Department under changes made by the agency in 2012. That means that as home loans become more risky, the companies known as government-sponsored enterprises (GSEs) would have no capital buffer to absorb losses. Taxpayers could again be called upon to rescue them in the event of another economic shock.
Treasury provided $188 billion during the 2008 crisis to save Fannie and Freddie, which were seized by the government and placed in “conservatorship” by the newly established Federal Housing Finance Agency (FHFA).
“When those two firms fail—as they will, especially when they don’t have any capital—the result will be the taxpayer will have to pick up the bill again,” said Peter Wallison, a fellow at the American Enterprise Institute (AEI) and former general counsel of Treasury during the Ronald Reagan administration, in an interview.
“The lessons of the financial crisis have not been learned,” he added.
