Mortgage giants continue to struggle

Almost a year after the massive government intervention to save faltering corporate banks, they still continue to be entirely propped up by Government intervention.

Thus far the now federally run companies that ensure the availability of home loans, have tapped about $96 billion in government aid since they were seized a year ago this weekend. Without that money, the firms could have gone broke, leaving millions of people unable to get a first time buyer mortgage.

So a year later and many of the questions surrounding the fall remain, but several things are clear: The business banks and mega mortgage companies are unlikely to ever return to their former power and influence, the stimulus will cost taxpayers even more money then they first assumed, and the government will have a big role in the U.S. mortgage market for years to come.

The mortgage invesment companies have seen a golden time over the past two decades, buying mortgages from lenders, pooling them into bonds and selling them to investors, both domestic and over seas. Critics called them unnecessary, arguing that Wall Street could support the mortgage market itself without a middle man.

That argument has faded in the wreckage of the failed loans that led to the housing bust. Investors have now fled any mortgage investments that doesn’t have the government standing behind it.

“No longer is anyone arguing that the private sector can handle this on its own,” said Jaret Seiberg, an analyst at Washington Research Group.

Now a year later, the government has a controlling stake in nearly 80 percent in many of the major companies, with it their growing problems as defaults and foreclosures continue to skyrocket.

Mortgage lenders facing huge losses, have kept standards tight, freezing credit, tapping savings and equity, and frustrating many. Eric Delgado, a mortgage broker in Rockville, Md., says there’s zero flexibility with either company. Either borrowers qualify or they don’t. No arguing. No excuses.

However some in the industry say the restrictions are long overdue after several years of lending excesses.

“You needed to bring some reality to the market,” said Michael Moskowitz, chief executive of Equity Now, a New York-based mortgage lender, which does about 80 percent of its business with Fannie and Freddie.