By Rick Manning — Like many Americans, I refinanced my home in the past couple of months.
In searching for a home mortgage lender, my first stop was my former mortgage company, Wells Fargo, as I was happy with their web payment system and did not want to change companies. Unfortunately, even though I always paid my loan on time, my bank’s interest rate offer was not competitive, so I chose a mortgage broker which advertised that they had their own financing so they could turn around loans fast.
Having written about the housing crisis in the past, I was particularly attracted to working with a lender which was not tied into the entire Fannie Mae-Freddie Mac mess, and signed on the dotted line.
On settlement day, I discovered that ironically my loan had been sold to Wells Fargo before the ink had even dried. While not entirely happy over this turn of events, as it cost me money to redo the loan through another party, I was glad to be back in the comfort zone of having the same mortgage company.
Imagine my shock when I opened my mail within two months of my settlement and discovered that Wells Fargo had sold my loan to Fannie Mae. For all intents and purposes, my loan is now owned by the federal government with Wells Fargo bank providing loan servicing for Uncle Sam.
This is how the government now owns 95 percent of all new home loans, they are purchasing them from what used to be mortgage bankers and paying those banks a fee to service them.
Overall, the federal government owns about $5.16 trillion out of the approximately $13.7 trillion of all mortgage debt outstanding in the United States.
Fannie Mae, which humorously still clings to the claim that they are an independent Government Sponsored Enterprise, operates under the conservatorship of the federal government with an unlimited credit line which expires at the end of 2012. After that, Fannie Mae and her sister organization have another credit line of up to $275 billion.
Fannie Mae’s balance sheet for the second quarter of 2011, showed that they were $5.1 billion in the red and taxpayers are footing that bill as they have drawn on their unlimited taxpayer funded line of credit to make up the balance.
In some strange way, the realization that mortgage banks have become nothing more than collection agencies for the federal government makes me think of the simpler pre-derivative world of banking shown in the movie “It’s a Wonderful Life”.
Then, George Bailey (Jimmy Stewart) explains to one of his customers , “You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house… right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can.”
If the movie was remade today, George would have to change his explanation to, “You’re thinking of this all wrong, I don’t actually lend you the money, I’m just a front man for the federal government. You’ll have to call them up, I’ve been declared too big to fail.”
Unfortunately the face of the person at the other end of the phone may just look suspiciously like another character from the movie — the conniving, manipulating Mr. Potter.
It is time to restore the private mortgage banking industry, and get the federal government out of the banking business. Congress needs to stop subsidizing Fannie Mae’s failures, stop Fannie Mae from increasing the national debt by artificially pumping more money into the economy by buying nineteen out of twenty new mortgages in the country, and force Wells Fargo and other “mortgage bankers” to do their job — write mortgages and take the risks associated with these lending decisions.
The truth is that when you wring the risk for mortgage lending out of the system as the government purchasing of loans has done, the private mortgage lenders have zero incentive to stop the very lending practices that led to the current economic crisis.
And I get stuck not only with the federal government owning my mortgage, but, as a taxpayer, with the bill for all of those other mortgages that never should have been written and are now in default. What a country.
Rick Manning is the Communications Director of Americans for Limited Government.
