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The government focus on Fannie and Freddie indicate they are missing the real opportunity

 

The growing speculation that the government would have to step in and bail out Fannie Mae or Freddie Mac, costing tax payers billions of dollars further illustrates the wrong focus.

The housing market has seen an unprecedented decline over the past twelve months. The amount of media coverage highlighting declining home values, foreclosures and mortgage companies going out of business grows on a daily basis. The band aid approach that the government is discussing in bailing out Fannie Mae and Freddie Mac are only going to add fuel to the fire. While its necessary to believe these agency lenders will be covered financially, the larger concern should be on fixing the financing industry.

Housing is very much like any commodity, it reflects supply versus demand. Their is an abundance of supply and a muted demand. This is where the focus needs to be. Mortgage lenders have lost trillions of dollars in the past twelve months, forcing hundreds of companies out of business. Lending guidelines have tightened significantly. The focus for the government needs to be on providing a lifeline to struggling banks to deal with home foreclosures. Having hundreds of banks file bankruptcy is only going to further fuel the crisis. The idea of a tax rebate for first time home buyers is a step in the right direction, but this needs to be broader, with more incentives for lending.

Fixing the housing market at this point will take billions of dollars from the government. The focus needs to be on bringing buyers into the market and helping lenders deal with foreclosures. This simply is a case of paying today versus paying significantly more next year if this down cycle is not fixed.

7-8 2008 ? LoanNetwork.com

 

 

 

 

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