Australia Loses Mind By Proposing Its Own Fannie Mae

If you think (hope) that even as much as a cursory look at the failures of Fannie Mae and Freddie Mac would be enough to persuade any other country from proposing something so absurd, then think again.

Please consider this article from the land down under: Mortgage arrears rise to record high.

Australia's mortgage arrears rate rose to a record in March as borrowers struggled to make repayments because of rising inflation and higher interest rates, according to Standard & Poor's.

Payments more than 30 days late on so-called prime loans increased to 1.45% of mortgages used to secure bonds, from 1.37% in January, S&P said in a report.

Housing affordability

About 1.1 million Australians are paying more than 30% of their income in rent or home-loan costs, Prime Minister Kevin Rudd said in a speech on March 3.

A housing affordability committee has recommended Australia consider a government-backed mortgage agency similar to the Fannie Mae in the US, according to a report tabled in parliament in Canberra yesterday.

A state-backed lending agency, AussieMac, would leverage the government's top AAA rating to buy home loan-backed securities and repackage them as low-cost mortgage bonds to be sold to investors. It would boost liquidity and enable smaller operators to fund their mortgage borrowings, the committee said.

Aussie Mac Simply Insane

There is a rock solid Case for Abolishing the FHA and GSEs for many reasons. Here are some of them:

• Fannie Mae has failed to help make housing affordable (its primary mission)
• Fannie Mae's CEO was forced out in disgrace
• Fannie Mae and Freddie Mac were both involved in multi-year derivative scandals where they had no idea what their derivative books ever were.
• Government sponsorship of housing is absolutely guaranteed to drive up prices (until things implode as they did in the US).

And most importantly the government has no business promoting housing over renting for any reason. Such promotion causes bubbles and the biggest bubble in history is now imploding. If ever there was a complete model of precisely what not to do, the US government sponsorship of Fannie Mae and Freddie Mac would surely be on the list.

Yet somehow, some way, some clowns down under look at Fannie Mae and think it's a good idea to take this massive failure and replicate it. Amazing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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