I'm going under the assumption that there was some sarcasm intended in that post, but this does raise a very interesting issue.  Do we need a secondary market for mortgages, and is it possible to have a secondary market without Fannie and Freddie that won't subject the taxpayers to unlimited liability?

Personally, I'd prefer to see mortgage lending go back to local lenders with hometown ties and relationships with borrowers.  But, it is probably much too late for that. Banks don't make money from interest anymore... they make their money from fees (ATM fees, deposit fees, check processing fees, monthly service charges, NSF fees, overdraft fees, and of course... all of the various loan processing fees we have come to love so well - sarcasm intended). 

Unfortunately, these fees made banks VERY profitable and many hometown banks sold out to larger national or regional banks.  Now there just aren't enough local banks left to service our communities.  We are stuck with the too-big-to-fail banks. 

I don't know what the answer to our problem is, but I think at this point we do need a secondary mortgage market if we expect to maintain any liquidity in our mortgage market.  And it has gotten so large that it will most likely require government involvement.  That means that our legislators better get it right or we will see more bailouts in the future.  I think that is why the problems with Fannie and Freddie were not addressed in the recent Wall Street Reform Act - it will take time to figure out the right way to restructure this monster!

Best,
Robert A. Franco
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