Earlier this week, we reported on a movement gathering momentum in Congress that would enable Fannie Mae and Freddie Mac to force lenders to buy back bad loans to help the mortgage giants recoup some of their combined $354 billion in losses due to delinquent mortgages and bad debt. Now, some members of the House of Representatives (Barney Frank, D-MA, and Paul E. Kanjorski, D-PA) are taking things a step further and calling for the president, both GSE’s and anyone else that they can get their hands on to use “all of [their] power to recover money” from underwriters and issuers of underwater securities that ultimately made their way to Fannie Mae and Freddie Mac .
The two representatives claim that Fannie and Freddie have cost taxpayers $150 billion to date, and blame a significant portion of these losses on “deception” on the part of “private companies [that] sold Fannie and Freddie loans or securities based on fraudulent documents.” Now, I am certainly not saying that there was no fraud on the part of any lenders, and we all know that some pretty lousy mortgages made it through the underwriting process in the past decade. But wasn’t this partly because of the lenient and even aggressive policies that not only encouraged but rewarded and even demanded these types of loans? Why should only half of the guilty parties pay the price now, especially when Fannie and Freddie were bailed out specifically to help disperse these losses?
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