I don’t fully understand the implications of the US govt taking over two of the biggest mortgage banks in America, so that’s why I’m opening up this question to others who may know better.
Let’s say your mortgage is held by one of these banks, or a subsidiary of them or whatever. In effect, that means one of these banks owns your house, correct? Now, if the govt comes in an takes over those institutions which own your house, couldn’t we argue - however loosely - that, in a certain sense, the govt now owns your house? Or is that just totally hogwash?
If it had any truth to it though, I wonder what percentage of American real estate was just put under the direct protectorate of the US govt… and more importantly, how well they’ll act as stewards of it all.
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3 Comments
I don’t have an answer to your legal question yet. It’s a good question though. I can’t find any good links either too. My understanding is that by taking over the two corps./agencies they are really trying to stabilize the value of the dollar vs. other currencies.
We created vast amounts of dollars in the housing bubble, then we sent those dollars to the Middle East in exchange for oil and China etc. in exchange for cheap goods. China in particular seems to have kept their currency artificially low vs. the dollar to keep their growth high.
Those nations bought US Treasury bonds which allowed us to continue to ignore the problems in our economy. Because Fannie Mae + Freddie Mac were corporate-governmental hybrids buyers assumed that the gov’t. would always bail them out and valued them exactly as they would value US Gov’t bonds.
If they thought there was a chance they could lose that much money they would either try to dump the FM + FM bonds or sell US bonds to cover their losses. Thereby, possibly, creating a run on the dollar and/or creating more inflation.
Also, my understanding of the dollar vs. the world is that the dollar has won the first round. It only won by not losing though. Basically,
the dollar was being devalued/re-evaluated in line with the strenght and stability of our economy. The other nations are doing poorly too and if the dollar is devalued too much the dollars they keep lose value too.
Remember, this is probably why we went to war in Iraq and why we are threatening to go to war in Iran. Saddam Hussein was about to start trading oil in Euros and Iran opened an oil bourse that trades in a variety of currencies. The underwater cables that were severed rigned the Iranian island that housed the oil bourse.
Therefore, if oil is traded in dollars nations of the world have a huge stake in our currency staying strong, perhaps even stronger then their own currency.
Oh yeah, duh. The answer to your question is that the new regime would treat the mortgages in almost exactly the same way as competing mortgage issuers treat their customers. I think they would have to in order to be able to accurately evaluate the FM + FM bonds vs. other mortgage lenders bonds. The FM + FM stockholders get very little from what I’ve read today.
Unless there is a total economic collapse. Then politics would take over and congress would try to use it’s “ownership” to intervene. I think there are a lot of competing economic theories as to what effect this would have.
Here’s a good article with an even better comments section.
http://latimesblogs.latimes.com/money_co/2008/09/bill-gross-the.html