I wrote recently about the problems at Fannie Mae and Freddie Mac that led them from being healthy, economically viable enterprises to becoming wards of the state. They used to have a combined net worth of close to $100 billion and now they are $100 billion underwater, and counting.

The Congressional financial restructuring act did not even attempt to deal with it other than to allocate $30 million or so to hire consultants to "study" how best to privatize them sometime in the future.  I suppose that is because today no one has a clue.

I said that one of the problems was that they forgot that the core mission of any business is to survive.  After that is assured, they can worry about expanding. After that, they can worry about things that are more altruistic, like expanding homeownership opportunities. They were sunk in large part because political forces at work in Washington D.C. thought, incorrectly as it turned out, that they could use Fannie and Freddie to achieve political goals without any attendant risk.

To that end, they inserted political goals into their mission statement, mandating that they should serve under-served markets, particularly loans to low- and middle-income borrowers.  As a result, the agencies bought billions of dollars of toxic loans, mostly to those borrowers, that later went bad. That helped create the meltdown.

You would think they would have learned their lesson.  Wrong!

In a statement this week, the Federal Housing Finance Agency that supervises Fannie and Freddie issued an announcement with the intention to:

"establish a duty for Fannie Mae and Freddie Mac (the Enterprises) to serve very low-, low- and moderate-income families in three specified underserved markets -- manufactured housing, affordable housing preservation, and rural markets."

Note that the politicos forgot the trouble that lax underwriting standards have gotten us into. In the announcement, it specifically says that borrowers will be evaluated on:

the development of loan products, more flexible underwriting guidelines, and other innovative approaches to providing financing;

We got into this mess in part because of exactly those kind of statements and policies.

As to the rural program, it's designed to serve families who may have a credit and income history but who forgot to save money and who thus have no down payment.  Sound familiar?  Maximum loan-to-value is 102% and private mortgage insurance, PMI, is not required because the loans are government guaranteed.

Sounds like another disaster in the wings.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.