Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion.
When Congress removed the cap on how much money could be poured into Fannie and Freddie by the federal government, they opened the door to this kind of infinite bailout. It's a way for the Administration to pump limitless amounts of taxpayer money without Congressional approval.
And now Fannie Mae, in conjunction with the National Council of State Housing Agencies, are getting back into the irresponsible lending market. Fannie has agreed to purchase mortgages with as little as $1000 down, thanks to a federal program called Affordable Advantage. With over 15 million mortgages underwater, getting the government back into risky mortgages is an awful development.
As even the lefty Ezra Klein asked, "Have we learned nothing?"
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