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Von Aldo

The Housing Crisis, Part II, Is on Its Way

With apologies to The Who, here is a refrain that will likely come true in a year or so: Meet the new subprime crisis, just like the old subprime crisis. That's because Fannie Mae and Freddie Mac, the government controlled mortgage companies that helped get us into the housing crisis, are back to their old tricks.

If you thought the subprime crisis was nearing an end, you should read Charlie Gasparino's article about how the government (via Freddie Mac and Fannie Mae) has essentially taken over the hom mortgage industry . . . and is continuing the errors that got us in the financial crisis in the first place. Apparently, says Charlie Gasparino, both agencies have started new programs that once again make loans and guarantees to 'subprime' borrowers, or people with the lowest credit ratings -- the same sort of lending practices that contributed to their collapse back in 2008."

Fannie and Freddie, now owned by the government outright, have cost the taxpayer about $148 billion in bailouts (so far). And, if that weren't enough, a September 15 House Government-Sponsored Enterprises Subcommittee meeting revelaed that a program called Affordable Advantage is still going --- a program that allows Fannie to buy zero-down loans from state housing finance agencies.

Perhaps bottom feeders best avoid housing stocks until after Barney Frank, the House Financial Services Committee chairman, closes Fannie and Freddie. John Paulson, the hedge fund manager who made $35 billion shorting the housing market, is one of our Ten to Watch, because he is (or was) bullish on real estate. (He is also long gold.)

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