Principles and Policy by Baumol and Blinder - Term Paper Example

The evidence is clear as penalties that imposed on high-risk borrowers of up to 2% of the mortgage amount have been diminished or eliminated. Evidently, Americans have witnessed the lowest rates in recent decades due to the fact that homeowners are in scurry to refinance. However, 25% of these homeowners cannot refinance since their mortgage exceeded the value of the home. Since the last crash, Fannie and Freddie were both under the control of the Federal government, a move that had to be conducted in order for the American economy to be stabilized.

Currently, the program has not worked up to its potential as only 894,000 borrowers have conducted refinancing in their mortgages through agency. Although many factors affect the outcome, it is clear that Fannie and Freddie Mac are hindrance towards the market as they continue to enact hefty fees and conditions to their customers. It relates to macroeconomics due to the fact that housing bubble continues to grow out of hand. The housing market has been in such a turmoil that individuals can start owning homes for $50,000.

This act is beneficial because it can lower the interest rates and allow people to pay their mortgages, which can increase the price of homes. Moreover, critics continue to question the effectiveness of the program as it strives to boost the economy since cash flow of borrowers will be induced by investors who possess these bad mortgages. Conducive research indicates that housing market directly impacts the American economy. Real estate economics dictate the economic strategies that are used in the market.

The housing economic discusses the business and structural modifications that can potentially ruin the industry. In essence, there is no market equilibrium as the demand for houses has been high even though supply has diminished. This is mainly because of the low price that has continued to haunt the economy. BBC Newt Gingrich, Republican president, has defended the fact that he was never bribed by Fannie Mac. Gingrich was reacting to a report that he earned up to $1.8 million as the consultant from the leading mortgage lender.

The former congressman continues to defend the fact that he never lobbied for Freddie Mac. Gingrich has been on the focal point since the elections have been heated up as he is the leader in the Republican polls. Since Freddie Mac is funded by the government, owns and continues to ensure half of US mortgages. This is critical to economics because Freddie Mac is already under strict scope of the government as it continues to struggle. If the accusations are indeed true, then both Freddie Mac and Gingrich can be in huge trouble considering the fact both are huge names in the industry.

Gingrich insists that he was hired "strategic advice over a long period of time" to Freddie Mac, although he could not specify exactly how much he was paid. Yet, with the market on the verge of going chaotic, Gingrich is under the microscope for his actions. As mentioned above, Freddie Mac is still imposing high fees to its customers, something that Gingrich should acknowledge and address in his presidential debate. It will be interesting to see whether Gingrich’s reputation increases or decreases in polls.

PBS Recently, a couple decided to buy a house which was worth only $1.