I have to agree with BeautyMark, although not for the same reasons.

We do have a lot to bitch about...justifiably. Fannie Mae and Freddie Mac were created to add liquidity to the mortgage markets. The idea was that banks shouldn't have to tie up their own money over the life of fifteen and thirty year mortgages. Congress wanted banks to have the money to lend to ever greater numbers of Americans pursuing the dream of homeownership.

So FM/FM were created to buy mortgages, thereby providing banks with liquidity. Because FM/FM, quasi-governmental agencies, were there to buy the mortgages from them, banks no longer worried about risk. Obviously. If banks could sell the loans to an eager agency, why do the due diligence to make sure the loans were good? The good loans and bad loans--all were sold to FM/FM.

FM/FM then turned those mortgages into mortgage backed securities that were sold all over the world. Because they are quasi-governmental agencies, operating under mandates from Congress, no one saw any risk in buying the securities. After all, the securities were implicitly guaranteed by Uncle Sam.

During the "good years," Congress, both Dems and the GOP encouraged FM/FM to pump more and more money into mortgages.

In an unabashed spirit of partisanship, I'll note that Democratic-controlled Congresses were more active in this regard, mandating FM/FM to buy mortgages in ever greater amounts from low-income people. Here, think of the great economic minds of Barnie Frank, Charles Rangel, and that august senior senator from New York, Chuck Schumer. Also, please note that Fred Raines and Jim Johnson, both prominent Obama supporters, were chairmen of FM. Fred Raines made off with $120 million dollars during his nine year tenure. Johnson made a like amount.

By some estimates, Fannie Mae and Freddie Mac hold eighty percent of all US mortgages. Yes, you read that right. Eighty percent.

This government intrusion into the marketplace removed risk from mortgage lenders and from the buyers of mortgage backed securities. No one in government noticed. No one.

This is not to suggest I don't support the bailout. I do. Without it, we would see a global financial meltdown. The Depression analogy pales against what would happen.

But who is left holding the bag to the tune of $700 billion? (And where did that number come from anyway?)

We are.

So, if you don't mind, I'll go on eating cheeseburgers...and bitching.

Okay, I realize that posting my soapbox comments on this site is like preaching to the choir as Alphawomen are smart, financially responsible, outgoing, outspoken and don’t sit around on comfy couches eating bon-bons all day (maybe at night with a glass of wine, but not all day)! Ladies, you give me hope! ;o)

My point was not to say there we are lacking for subject matter to bitch about – as greed, corruption, poor management, and lack of effective government regulation are causing economic devastation on a grand scale. The comments were more to the point that MANY of the people I hear bitching have made (and continue making) poor choices in their own lives that are contributing to these issues. And, many of these armchair quarterbacks are complaining but not acting. This applies to all issues and not just housing. Huge case in point: Mr. Al Global Warming himself traveling around the world in his private jet and having his motorcade of gas-guzzling large SUVs running in the parking lot waiting for him to finish another speech.

If EVERYONE stopped spending beyond their means, over charging, consuming as if every resource was unlimited, and took better care of their physical and mental health, the impact on healthcare, economic, and environmental issues we are facing today would be huge. I’m simply proposing that in addition to the top-down solutions we are demanding from these presidential candidates, we need to also promote a bottom-up approach to support these solutions. Government can continue to step-in, bail-out and re-distribute wealth from those who manage finances properly to those who do not … but if a great many Americans don’t stop making poor choices, government will be required to keep feeding this beast… we’ll have to keep feeding government… and we will never emerge from this vicious cycle.

I will be the first to admit that there are a few changes I need to make in my house to ensure that in the future I do not contribute to the burden on my fellow tax-paying Alphawomen...get help with my shoe addiction, save more, put more into retirement (although right now I can't even look at my 401k account out of fear).

Great discussion. I was in the mortgage industry and while now it is easy to say that it was based off of greed, some of it was, but let me tell you I put people in homes that only dreamed of home ownership and I am proud to say they still own their homes. Take for instance a very good Hispanic friend of mine who works his tail off to support his family. He went from renting for many, many years to finally owning a home. 

Interest only is a great loan if you know the benefits and you know how to use it correctly. Most of your very saavy investors use interest only loans. You see on an interest only loan you can pay down the mortgage at an accelerated rate, many times in half the time of a fixed mortgage. You apply extra payments your interest goes down and the next month your payment is less than the month before.

Where as on a thirty year fixed if you make extra payments, you still
have the same exact payment next month. The bank doesn't take into
consideration that you are six months ahead of schedule and as a result they expect the same payment or you get penalized. Now think about having 70% to 90% of your equity tied up in your home and you fall sick, or your spouse does and you loose your job and your credit drops and now you can't pay your bills or refinance your home and even though you are ahead of the game by six months you start missing your payments. Guess what? The bank starts to penalize you and if you can't get yourself out of trouble pretty quick they start the foreclosure process. Savvy investors take their money out of their house to keep it liquid or invest in other investments. But they know what they are doing. They maximize their mortgage interest deduction and use the liquidity to make more money.

THIS ISN'T FOR EVERYONE and that was the problem. To many people who didn't understand how these unique products worked in their favor used them wrong or simply didn't care and wanted not only the new house, but the new car, the boat and to travel. No one expected the economy to take a dive and many are crying now.

I never sold option arms but even option arms had some great incentives to them, again the key here is that you understood how to use them. Then you had the forty year fixed which is very similar to an interest only and basically you would be paying three to four times what your home was worth to have that extra cash in hand every month and have the freedom of home ownership.

I could go into twelve months out of foreclosure, citizenship, no money down loans..........truth be told.....many people are in homes and are keeping their homes in spite of this crazy economy. Had we not had the upswing and the false sense of confidence that went with it, many people would never be in homes.

This is NOT just a white collar or blue collar problem, this economy is effecting the wealthy on wall street to because they too bought into the boom and didn't anticipate what was looming at the end. All said and done you can say what you want, many people are in homes because of the creativity of the banks and the lax lending guidelines. 

Most of your foreclosures today are from speculative buying or worse when you bought the house you could indeed afford but now suddenly find yourself out of a job. WHAT DO YOU DO? This is happening all across the country as corporations are finding it more and more difficult to stay in business and closing their doors it has a rippling effect down to your hair dresser and nail technician.

I think it is hard for anyone to go from bustling to dead over night. We are all trying to adjust and figure out how to thrive in this new economy. It is here for a while and we all need to open our eyes and figure out how we are going to make it through this down swing and come together to figure out what matters instead of fighting over trivial issues. I completely agree that we need to stop blaming one party over the other and focus on the major issues at hand so we can get out of this economic slump and not spiral down deeper into a major global meltdown. 

Great Post!
XOXO,
Freda
Founder
www.AlphaWomen.com
"Those Who Say It Can't Be Done Need To Get Out Of The Way Of Those Who Are Doing It!"