Freddie Mac’s Koskinen Speaks up
This interview is spin control. But it contains insight on where things stand now with the government sponsored entities.
Bloomberg’s Judy Woodruff interviews John Koskinen, ceo of Freddie Mac.
February 7, 2009 | Filed Under Financial Crisis, regulation
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Good afternoon. I found the interview interesting and insightful; however, while I understand Mr. Koskien’s position regarding paper losses relative to economic losses of the underlying assets, I am more concerned about aggressive subprime mortgage lending practices that created this beast. I believe that it was close affiliations between large developers, builders, and mortgage originators and aggressive lending products that led to this crisis. This close relationship breeds further problems because as the number of non qualified buyers qualify, housing and land prices are artificially driven up by the increased demand thereby crowding out otherwise potential buyers who choose to defer purchasing until they have sufficient equity to invest in the new home. In turn, banks that finance the residential developments for developers based on demand for by truly qualifying buyers and “papered” buyers fund their loans at appraised values that are positively biased resulting in overvalued developments. I believe there are many individuals and families with strong credit and work histories that would be willing to purchase a new home but no longer can because the negative impact of foreclosures on their property values. What programs does Freddie Mac have to meet the needs of the latter families (LTV issues)? Also, what control measures will Freddie Mac have in place to ensure the quality of mortgage applications referred by developers to mortgage originators who are both compensated by the applicant being approved (checks and balances in underwriting)?