Refunds for Freddie and Fannie aren't being given for bad bank loans

Part of what caused the collapse of the housing market was toxic mortgages. How it works is simple. A financial institution or loan lender gets someone into a mortgage, and the mortgage is sold as a paying asset. Some individuals just had poor luck, and others should not have been given bank loans at all. Many of these loans were sold to Fannie Mae and Freddie Mac, and when the assets went bad, Fannie and Freddie went into freefall. Part of the law governing these transactions mandates that in the event the buyer wants to sell the assets back, the vendor has to do agree, but a lot of the sellers are refusing. Article source – Bad bank loans to Fannie and Freddie not being bought back by Personal Money Store.

If asked the poor loans have to be bought back

Purchasing a bundle of bad finance loans back from a company that has been damaged by buying them would seem fair. If lending options sold as securities become toxic and are foreclosed on, there is legislation that was passed that guaranteed lending options have to be purchased back on request. A great deal of these mortgage securities that went poor were purchased by Freddie Mac and Fannie Mae. The law is on the side of the two mortgage giants. However, the troubled corporations aren’t getting the pay-backs that are owed.

No redress of faulty assets

There have been a fair amount of the bad mortgage properties that are not getting repurchased. Freddie and Fannie have been asking for a refund from the corporations that sold the mortgages to them, according to USA Today, and about $11 billion worth is being sold back. Of that $11 billion, lots of it is going nowhere right now. A full 3rd of the loan refunds are 90 days delinquent. Those aren’t the only businesses that bought those securities. Other lending options were backed by the Federal Housing Administration and the Veterans Administration.

Banks harming themselves

The idea is that in the event the pay-backs are granted, the bank or loan company that sold the security will lose money. However, that is really counterintuitive. Tax dollars are what is keeping Fannie and Freddie afloat, and companies and individuals who work in those companies pay taxes. The executives and employees of the financial institutions and other corporations that won’t buy back the assets can have to pay taxes until the debt for Fannie and Freddie is paid off.

Additional reading

USA Today

usatoday.com/money/economy/housing/2010-09-15-fannie-freddie_N.htm