Why We Need Fannie and Freddie

[flip_it_fast]

I've heard people say that we should do away with mortgage giants Freddie Mac and Fannie Mae and eliminate the government and secondary market from buying mortgages from banks. Go back to the good old days.

Although I do think that their role needs to be lessened I don't think eliminating the secondary market would be good at all.

Banks alone cannot handle all of the mortgages, they just don't have the resources. So what that would mean is that mortgages would be rationed.

Consider these facts: There are 76 million homes in the U.S., of which 51 million have mortgages. Taken together, those mortgages represent a debt of $11 trillion. That's a level of debt that banks can't afford to hold on their balance sheets alone. As a nation, if we want to make home ownership broadly available and affordable, we need a secondary mortgage market that operates fairly and efficiently for all parties.

I think we need a better balance between the banks, the secondary market and the homeowners. If the debt is more evenly spread it's less on each one. That lowers each parties risk significantly. That would probably mean larger down payments but the benefits far outweighs the risks.