WHEN politicians bashed Wall Street for its reckless mortgage lending in the wake of the subprime crisis, bankers retorted that it was the politicians’ enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, that had really fomented the disaster. Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.Both Fannie and Freddie were bailed out during the financial crisis. There was much talk in Congress of winding them down; in the meantime, they tightened loan requirements to limit the risk to taxpayers. But that changed when Barack Obama appointed Mr Watt, a congressman from North Carolina and long-term evangelist for home ownership.Fannie and Freddie do not issue mortgages. Instead, they buy them from banks and guarantee the securities into which they are bundled for resale. Over the past two years many big mortgage lenders have paid billions of dollars in fines and been forced to buy back piles of dud loans on the grounds that they did not conform to Fannie’s and Freddie’s rules. These settlements were controversial, in that the pair had actively sought out risky mortgages to satisfy their mission to promote...
from The Economist: Finance and economics http://www.economist.com/news/finance-and-economics/21627699-america-restores-weak-lending-standards-led-housing?fsrc=rss|fec
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