Alvin Koo's Blog

The 2008 financial crisis is at risk of repeating itself when government-sponsored mortgages issued by Fannie Mae retraces the steps of unrestricted lending practices. Accordingly, under a government-imposed lending program, Fannie Mae is lending out mortgages to people for very low down payments once again. In the lecture on the financial crisis with Murray Carlson I have learned that highly leveraged mortgages and sequential defaults resulted in failures of small investment banks and hedge funds. Fannie Mae’s “no money down” policy definitely reproduces high leverages and could potentially lead to defaults on payments.

Furthermore, on the borrower’s side they still assume very minimal responsibilities. The government’s intention in funding these mortgages is to allow better terms for borrowers so that the housing market could get moving again. However, in doing so, the government has given more reasons for borrowers to default on payments if the “housing bubble” was to collapse again. Borrowers expect the loss to be absorbed by the government, which makes defaults practically guilt-free.

Although we expect lessons to be learned from the recent financial crisis, there still exist bullies who take advantages of others but leaves without consequences. These bullies are not the bankers, but the borrowers.

http://www.cnbc.com/id/39097637/Fannie_Mae_Sponsoring_No_Money_Down_Mortgages_Again