The United States was stunned last Friday as institutional credit analyst Standard and Poor’s lowered its credit rating to AA+. This marked the first time in the history of the country its gold-plated AAA rating was adjusted downward. Today, housing giants Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) saw S & P deliver the same blow to them, as they did the U.S. Their credit rating was also downgraded to AA+.
Housing Crisis of 2007
Ever since the housing crisis erupted in 2007, Fannie Mae and Freddie Mac have been under fire. Even though they needed government bail-outs to stay afloat, some lawmakers have been lobbying for some time to end their existence. Perhaps, they are playing partisan politics but Fannie Mae and Freddie Mac are crucial players to homeowners seeking to obtain competitive mortgages.
For those in Los Angeles, their role is more critical due to the volume of loans generated. For the housing market to recover it needs companies who have a strong secondary market presence. In addition to competitive interest rates, their size make it possible for homeowners to purchase or refinance with reasonable down payment or equity positions. These are just two primary benefits. There are many more but they are a critical part in developing our nation.
The Great Depression
Just as Federal Reserve Chairman warned politicians of playing games with the Debt-Ceiling debate, the same can be said for politicians who are using ideology over common-sense. Perhaps they have forgotten, why these two institutions are crucial to the U.S. Economy, or what life use to be like before their existence.
Coming out of the Great Depression lawmakers had the courage to create the Federal Housing Administration (F.H.A.) with the primary mandate of creating affordable mortgages. In 1938, Fannie Mae was created to support FHA and create yet more home ownership opportunities. Right before the public’s eyes, the middle class was born as housing tracts boomed due to affordable mortgages being available. In the 1970, Freddie Mac joined Fannie Mae and FHA and home ownership mushroomed in the greater Los Angeles market, and all across the nation.
If Not Fannie & Freddie, then what?
Like other companies caught up in the housing debacle of 2007, Fannie Mae and Freddie Mac deserved the criticism it received. The S & P downgrade was long overdue, but the question remains if they are no longer in business, who will replace them? Can a weak economy support home buyers needing 20% down? What about competitive interest rates? Just like the U.S., the S & P news is a wake-up call to respond to solid policies and practical initiatives for the good of country.
Standard & Poor’s
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