Americans for Prosperity Spearheads Fight Against Government Bail-Outs for Lenders, Borrowers

On Monday, grassroots organization Americans for Prosperity produced a multi-media news release that represents the views of millions of Americans who do not want the federal government to do anything to bail out either lenders or borrowers who have suffered from the bursting of the housing market bubble and the purchasing of irresponsible or highly risky loans during that time.

The coalition does acknowledge that if government desires to help, it can do so by facilitating lenders and borrowers coming together and negotiating favorable terms.

The groups involved in the coalition sent a letter to Congress expressing opposition to any measures that would increase the role for government sponsored enterprises like Fannie Mae and Freddie Mac, arguing that this would encourage yet more irresponsible
risk taking while sticking taxpayers with the bill if loans default.

"We formed this coalition because we don't want the fallout from the sub-prime housing crisis to be used as a pretext for a larger more intrusive federal government," stated Phil Kerpen, director of policy, Americans for Prosperity.

There are critics of the two giant GSEs that have been calling for a severe shrinkage of the mortgage portfolios held by them for some time. Unfortunately, they point out, with a housing market recession it is not the politically right time to enact the measures that would cut those portfolio sizes down to size.

Last year the Office of Federal Housing Enterprise Oversight conducted a study of Freddie and Fannie and came up with recommendations to cap the two GSEs' mortgage portfolios at $200 billion, which is only approximately 15% of the their current limits.

The portfolios are utilized for backing bonds issued to foreign lenders. Such lending practices increase the United States' mortgage market liquidity.

Some people in the Bush Administration and the Federal Reserve have also recommended the caps, arguing that they pose too much of a risk of lost capital in the event of a mass default event, such as the one that Americans are currently enduring.

However, two years ago former Federal Reserve Chief Alan Greenspan testified before Congress that the current portfolio levels held by the two GSEs do not pose any threat to liquidity or stability, and even recommended that they be permitted to increase their capital limits in time of financial crisis or recession. The liquidity they provide helps to keep mortgage rates low, provide increased cash flow to the members of the general public who own homes, and give homeowners available equity in their homes that can be drawn upon when times go bad or get rough.

Both GSEs have suffered from bad accounting practices and misguided leadership in recent times, however.

Critics of government bailout schemes say that personal responsibility and intelligent risk taking are what are needed by borrowers and lenders alike in order to prevent future foreclosure debacles.

Original Newswire Source:
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