Fannie-Freddy and Bush is a socialist

3o years ago, if you wanted a $45,000 house, you showed up at the bank with $9,000 or they showed you the door. A 20% down payment was pretty standard for first-time home buyers and refinancing was fairly rare.
Also rare was "using your homes equity" to fund a bass boat and a 2-week trip to the Bahamas, but that is neither here nor there.

The main reason Fannie and Freddy went broke was because they lent huge sums of money to people who should not been given it. And who told Fannie and Freddie to lend that money so frivolously? Why, George Bush of course.

The following are excerpts from a Bush speech in 2002 that coincide with the start of the shady lending and wild mortgage practices that are now causing so much chaos.

Bush: "Let me first talk about how to make sure America is secure from a group of killers, people who hate -- you know what they hate? They hate the idea that somebody can go buy a home."

Bush is making the obvious point that terrorists hate realtors more than any other group of people, becuase realtors aid in the infidel practice of home buying.

Bush: "I believe when somebody owns their own home, they're realizing the American Dream. They can say it's my home, it's nobody else's home."

Bush accidentally mistakes the American Dream for the Third Amendment to the Constitution.

Bush: "Five-and-a-half million [more] families by 2010 will own a home. That is our goal. It is a realistic goal. But it's going to mean we're going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well."

What he is saying here is that not only will the private sector do whatever they have to do to get 5.5 million families mortgages, but the Federal Government will also help by buying out any mortgage companies that go belly-up when all that lent money dries up.

Bush: "Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that's too high, I'm not buying."

He's so right! High down payments are a lender's way of guaranteeing that the monthly payment will be low enough that lendee won't default on the loan. By keeping the down payment high, the bank also protects itself in case of a foreclosure by having a large initial burst of capital from the lendee that it can use to cushion any losses taken while trying to resell the home. So the high down payments are in effect, protection for the banks against people who couldn't afford the monthly payments. They also protect the person trying to get a loan, as the bank is in effect protecting the applicant from their own demise.

By and large, the decrease of the 20% down payment down to 10%, then 5%, then 0% down on 80/20 loans was the single factor that caused the current housing mess. If you do the math, putting 20% down on a 30-year mortgage effective cuts your monthly payment in half compared to a 0% down loan.

Bush: "There are neighborhoods in America where you just can't find a house that's affordable to purchase, and we need to deal with that problem."

He's exactly right. That is why a person searching for a home drives past those neighborhoods and goes to the neighborhoods with smaller houses and buys one of those. The wrong thing to do is to find a bank that'll loan you an 7/2 adjustable rate mortgage (ARM) so that you can get into a huge house, then hopefully flip it in 5 years before your ARM matures.

Unfortunately, that is what many people did, and the housing market collapse coincided with the maturation of their ARMs. Double Whammy!

And now, for Bush's real kicker: "And so, therefore, I've called -- yesterday, I called upon the private sector to help us and help the home buyers. We need more capital in the private markets for first-time, low-income buyers. And I'm proud to report that Fannie Mae has heard the call and, as I understand, it's about $440 billion over a period of time. They've used their influence to create that much capital available for the type of home buyer we're talking about here. It's in their charter; it now needs to be implemented. Freddie Mac is interested in helping. I appreciate both of those agencies providing the underpinnings of good capital."

Wait, what two companies did he say? Fannie Mae and Freddy Mac? Seems like I heard about them in the news lately...yes, it seems I remember hearing that they didn't have anything to do with good capital, but instead with $200 Billion in BAD capital. Capital that I, a taxpayer, am now picking up the tab for.

Of course, the "period of time" Bush was talking about was June 2002 - May 2008, when the two companies cried uncle and rolled over.

Now this is all post-haste, and really, do we need another blogger hating Bush and pointing out that he was best friends with those usurous scoundrels since he got elected, but I want to point out that its still going on elsewhere.

The current housing "aid" bill supposedly helps first time homebuyers by giving them a tax refund equal to 1/10th the total value of their home. So if Mrs. Abstracted Engineer and I bought a $150,000 home, we'd get a $15k credit on our taxes for 2008. Sweet! Free money!

Not so! The legislation stipulates that the refundee then has a grace period of 5 years upon which time, the refund must be paid back in full over the next 7 years.

So let me get this straight, the government is going to help me get a loan I can't afford by giving me free money, then right when I am in the midst of mortgage payments the government will start asking for the money back?

Only in America.

Full speech text here.