Out of nowhere, or so it seemed, the United States of America developed a mortgage and credit crisis. It is now and will be forever known as the "Subprime Mortgage" crisis. The fact that very little of it had to do with the Subprime Mortgage Business is irrelevant and will not be delved into in this column. One small note: (I can't resist) the option arm is not a subprime loan. The two biggest lenders featuring the option arm were Countrywide and Washington Mutual. Although both had subprime division I do not believe that the option arm was offered by either of these divisions. But I digress.

Once the pain started in earnest the populous screamed, Congress heard and acted and the two GSE's, government sponsored enterprises, Fannie Mae and Freddie Mac, took the challenge that they were given. Buy more mortgage loans at higher than conforming loan limits. They were given the area between $417,000, the current conforming loan limit, and $729,750 to work their magic with the new loans that now and forever more will be known as jumbo/conforming loans. Everything was in place to bring us out of the "Subprime Mortgage" crisis. This wouldn't be a very interesting piece, however, if everything went right and the crisis was over. So I am here to report something went wrong!

It began with a new set of criteria for conforming loans that appeared out of nowhere.

The new rules weren't here one day, but lo and behold, they came the next day. They would make things better for all that were hurting, yes? Not exactly. They actually would make things worse for those who were hurting. And so the story begins. There was a small reward for those who especially were in good shape and a large penalty for those who weren't. If you have a 720 credit score or higher you of course are one of the great credit risks in this country. Add to that if you have a 60% loan to value while the real estate prices are falling then meeting both criteria, you are rewarded and can perhaps get a lower interest rate on a 20 year, 30 year or 40 year amortized loan of up to an eighth of a point.

On the other hand if you have a good credit score 660-679 and a reasonable loan to value in a falling real estate environment, 70%, you will be penalized a quarter of a point to as much as 5/8 of a point. Was this what Congress had in mind? Actually Congress was only interested in the new conforming/jumbos but had they been interested in the old conforming loans I do not think this is what they had in mind. Why did Fannie and Freddie do this?

It is the same old answer you have heard many times before: because they could!

Well I am sure you are thinking they were going to make this up in the conforming/jumbo loans, but once again I must say, not exactly. We heard rumors, and then more rumors and then out came the worse case scenario. The new loans for the new limits weren't 3/8% to 1/2% higher than the old conforming rates they were 1.25% higher. Impossible you say!

And I believe Fannie and Freddie heard your voices. They moved the new rates up to .75% (lower) to 1.500% higher. I think we shouldn't have said impossible!

Now back to reality. The result of the above is the buyer(s) simply can't afford or won't pay the higher rate and another house goes back on the market. What has happened is more than a travesty. For years there have been calls to divest the GSE status from these two mortgage giants and I for one didn't feel it was a reasonable move. After all they are the largest purchasers of mortgage loans in this country. But what they have done with a mandate from Congress is unconscionable. They not only have not helped fund new loans within the higher limits, they made things worse for the conforming borrower. What is the purpose of doing either or both of those? Pouring water on a drowning man only makes a good lyric for a song. It certainly doesn't begin to turn around a bad situation.

The nation's lenders are losing their appetite for mortgage loans and it certainly doesn't help to have the two giant GSEs leading the way. If you ever gave your children money to give to the poor and forlorn who need help and found that they spent it on themselves you would be very upset. That is exactly the way I feel about Fannie Mae and Freddie Mac. Something needs to be done such as writing your congressman or congresswoman and ask them to look into what is going on. After all, they gaveth and they should expect results, or just maybe they should take it away.

If you aren't in the market for a new mortgage loan then all this seems like so much rhetoric.

It isn't. We have a serious problem stemming from the crisis caused by a multitude of bad loans and now being fueled by ever growing pessimism in the lending industry. There isn't a simple solution to the overall problem. Congress has their ideas, the Administration has theirs. The Federal Reserve has acted on some of their bold ideas and yet it isn't getting better. In fact it is going in the opposite direction. Loans that would have been approved in a day are being reviewed, reworked and then denied. These are not stated income loans to people who really don't have a job or much money. These are loans to professionals with high credit scores, low loan to values and substantial reserves. The threat is if the best can't get approved what about the rest?

We need to move forward and try to revive the optimism that seems to be gone. We cannot inciting in our society without the ability to help those who deserve, and are qualified, to own a piece of the American Dream. Any way that's how I see it from the front row seat.