Monday, February 16, 2009

Fannie and Freddie must be making large profits on their new business

According to Ken Harney, even if borrowers have a 20 percent down payment, if their FICO score is less than 740, they will pay hefty fees to obtain a Fannie Freddie mortgage. Given how far prices have already fallen, and given that borrowers are required to have a lot of their own money at risk, it is hard to see how the GSEs will lose on these loans, while at the same time they will collect a lot of money in fees.

Of course, they have lots of losses to make up for, so new borrowers are being charged for the mistakes of old management. But this seems neither forward looking nor productive to me.

1 comment:

  1. Anonymous6:39 PM

    The people who don't repay loans should pay more in fees (to cover their default rates). Why should the people who repay have to subsidize their bad behavior via higher interest rates. Why should the taxpayer have to subsidize them either.

    Enough with the nonsense of giving excessive amounts of subsidized loans to people who don't repay. That is how the system got into the mess it is in now. Standards must remain high to protect the system as a whole.

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