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There was a big push during the Clinton era to get more Americans into their own homes, under the belief that homeowners made for more stable communities, which is admittedly true. But did the push go too far? The evidence from the subprime market would suggest so. And my BW colleague Dawn Kopecki has a story in this week’s issue of BusinessWeek that raises questions whether Fannie Mae and Freddie Mac are sitting on a pile of bad loans that they were required to make by Congress, which stipulated that both of these government-sponsored enterprises allocate a specified portion of their lending to so-called “affordable loans”—financing provided to low-income individuals who wouldn’t qualify for loans elsewhere.
Dawn discovered that Fannie and Freddie are loathe to talk about the issue. But there are enough hints to suggest that problems may be brewing. The regulator of these two GSEs estimates that Fannie holds $292 billion of “affordable” mortgages, or 40.6% of its portfolio, while Freddie owns $68 billion, or 9.5% of its portfolio. And these are loans that are sitting on their balance sheets, since no private buyers would be willing to take these loans off their hands—certainly not at the interest rates that Fannie and Freddie had to charge on the loans.
If you’d like to see some of the houses that Fannie is holding in its portfolio, go to its web site and click on “Fannie Mae-Owned Property Search,” or simply click here. Then enter the physical street addresses of these houses into any local homes-for-sale site. You’ll find the “charming colonial” shown above (picture) that Fannie is holding in Detroit, despite the $59,000 outstanding on the loan.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.