In 2009, President Barack Obama lifted the $400 billion cap off the bailout money that Freddie Mac and Fannie Mae could pass on to the taxpayers. Apparently, $400 billion wasn't enough. Fannie and Freddie are publicly owned. You and I own them and all the debt they are accumulating and passing on. At times, the administration has allowed companies like Warren Buffett's Berkshire Hathaway to "buy their losses," a process by which a company gets to reduce their tax burden by giving cash in exchange for the bad debt. Ultimately, that company makes a bigger profit, and the taxpayers lose out on taxes they could have collected. There's no telling how much debt has been passed on to the taxpayers through Fannie and Freddie to date, and it's about to get worse.
Now, I understand Mr. Obama intends to bypass Congress and have the Federal Housing Finance Agency, which regulates Fannie and Freddie, loosen the terms (another way of saying "deregulate") of the President's Home Affordable Refinance Program. That's a program in which the government (that would be the taxpayers in this case) backs loans of up to 125 percent of a home's value. The president wants Fannie and Freddie to reduce loan fees and to waive fees on borrowers that refinance into loans with shorter terms.
If Fannie and Freddie were privately-owned companies, they'd never take these kinds of risks and they'd never survive with these kinds of losses. They've become a magic well that the president can draw money from whenever he chooses, and we are stuck paying his bills. While the Democrats may cheer the president's attempt to "stimulate" the housing market at the taxpayers' expense, once again, the taxpayers are helpless. We have no choice but to absorb the debt that will be passed on. There's no guarantee that housing values will increase in the near future or even in our lifetimes. If they don't, then those loans for 125 percent of a house's value are throwing our good money after bad. Those fees that Fannie and Freddie should have charged will be added to our debts.
This is just another artificial stimulus at our expense. If the president had allowed the housing market to bottom out naturally, it would have already happened a long time ago, and we'd be rebounding. As it stands, we're still walking the housing market down, cushioning its fall with our tax dollars.
This is a backdoor stimulus. It's not helping the inner cities. It's not helping the crowds that are occupying Wall Street. It's helping people who are already making their payments. It's helping people who don't need help.
Fred Pasek, FrederickCopyright © 2015, The Baltimore Sun