Just when I thought that people were beginning to make sense of it all, and working to clean up the mortgage mess, I read an article in the Austin American Statesman that completely blows me away.

What have we learned from this current state of the market?  For one thing, that people should not be buying homes with no money down, and then getting a piggyback loan to do the close.  This to me was one of the most basic problems - that people were getting into homes that they couldn’t afford, had no money down, and needed closing costs loaned to them in the process.  So, I was rather shocked to see this still happening.  And what really stressed me was the fact that it is our friends at Fannie Mae and Freddie Mac that are doing this.

I was laboring under the impression that the government was trying to help people out of situations that they had gotten into just because of using these practices.  I have always heard that Freddie and Fannie were mandated to uphold prudent lending standards and make home-ownership more attainable.  Obviously, I labored under a misconception.  The program, called “Home Possible” supposedly serves people with limited credit or savings.  I have to read that as people who cannot afford a mortgage in the first place.

Borrowers are sometimes required to show they have money in the bank to draw upon in a crunch.  Note the key word sometimes.  That isn’t always the case, according to Freddie Mac.  People can qualify for its no-money-down purchases with no cash reserves.  The caveat is that they must go to homeowner education classes.

I am missing something here.  It is well and good to help people that struggle.  But to dig an even deeper hole, regardless of homeowner education classes, to me borders on criminal.  Are we not in enough of a mess right now?  To quote the Statesman, Fannie Mae said that down payments “are a critical success factor in homeownership.”  The kicker here is that both Freddie and Fannie will then bundle these mortgages into securities for investors to play with.  Sounds like a vicious cycle to me.  Comments welcome…