Posted on 07/08/2009 3:33:43 AM PDT by Man50D
Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday.
The claims in the report have long been advanced by conservatives, who argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008.
But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- privatized their profits but socialized their risks.
In the short run, this government intervention was successful in its stated goal raising the national homeownership rate, says the report, the result of an investigation launched last fall by Republican members of the House Oversight and Government Reform Committee.
However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy, says the report. While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.
The report talks about the Clinton administrations National Homeownership Strategy, citing President Clintons directive to lift Americas homeownership rate to an all-time high by the end of the century.
The Clinton strategy further said that Freddie and Fannie should reduce down-payment requirements and, according to the report, called for increased use of flexible underwriting criteria, which it said could be achieved in concert with liberalized affordable housing underwriting criteria.
That is the perfect smoking gun that tells how Barney Frank [D-Mass.], the Clinton administration and others would do it in those days, Rep. Darrell Issa (R-Calif.), the ranking member on the House Oversight and Government Affairs Committee, said Tuesday in a speech at the Heritage Foundation.
The seeds of the meltdown began with the well-intentioned goal that everyone have a home even if they cant afford it, he said. It led to one of the biggest ponzi schemes ever.
Fannie Mae and Freddie Mac made 54 percent of the subprime mortgage loans from 2002 to 2007, or about $1.9 trillion in mortgage loans to borrowers with credit scores lower than 660.
The report comes after Rep. Barney Frank (D-Mass.) who fought against regulation of the two quasi-public mortgage giants -- and Rep. Anthony Weiner (D-N.Y.) wrote a letter in June to Fannie Mae and Freddie Mac calling on the GSEs to lower lending standards on condo buyers.
The report argues that lowered lending standards were the cause of the housing crisis and did not exempt the Republicans or the Bush administration from blame. It said placing certain lending quotas for under-served populations allowed both Democratic and Republican administrations to consistently make campaign promises to boost homeownership through government intervention in the market.
Consequently, under both the Clinton and Bush administrations, HUD dramatically increased these quotas, which reached their zenith when the Bush administration raised them to 56 percent, 27 percent and 39 percent, respectively.
As home prices continued their dizzying rise, many people decided to cash in by buying a house with an adjustable rate mortgage featuring a low introductory teaser rate set to increase after a few years, the report continues.
These borrowers, confident in the oft-cited assertion that U.S. home values had never before fallen in the aggregate, planned to sell or refinance their investment before the mortgage rate adjusted upward, pocketing the difference between the initial purchase price and the subsequent appreciation in value, says the report. However, buyers failed to grasp the effect of a government policy that had quietly eroded the prudential limits on mortgage leverage, creating a dangerous speculative bubble.
The report also talks about how the two GSEs became a powerful lobby. Fannie Mae CEO Jim Johnson opened up partnership offices in congressional districts, hired relatives of members of Congress, and GSE employees contributed $15 million to federal campaigns from 1998 to 2008. Throughout that time, all attempted reforms in Congress were blocked.
Also, in 1995, Johnson seeded the Fannie Mae Foundation with $350 million of Fannie stock. The company used this foundation to spread millions of dollars around to politically connected organizations like the Congressional Hispanic Caucus Institute, states the report.
Fannie and Freddie were not subject to regulation by the Securities and Exchange Commission, while executives were paid well. Former Fannie CEO Franklin Raines earned more than $50 million in compensation during his six-years at the helm, the report says. Fannie and Freddie paid billions more to shareholders. Thus, the government subsidizations of GSE operations amounted to little more than corporate welfare, the report says.
The report cites Franks accusations that to blame Fannie and Freddie is to blame only the lender and not the borrower.
This misses the mark entirely. In fact, responsibility for the erosion of mortgage lending standards, which began with government affordable housing policy, rests squarely on the policy makers who advocated these ill-conceived policies in the first place, the report says. Borrowers quite naturally responded to the incentives they were given, irrespective of their socioeconomic status, and risky lending spread to the wider mortgage market.
bttt
McCain while in Wisconsin campaigning was forced by an irate member of the audience to name names as he promised to do, and only once named Franks and Dodds with direct involvement in the housing fiasco.
With as many You Tube videos of Dodds and Franks and many members of the Black Caucus denying reforms for Freddie and Fannie the smoking gun has always been available to our fearless leaders, but alas we have not had a leader for a long time.
Hopefully that will soon change.
What we've been saying all along. Maybe now some of those that excoriated us will finally believe.
BTTT.
Change it will, indeed. She's coming, and she won't be stopped. America is trembling with its need for her, and Zero-bama is rolling out her red carpet.
Go git 'em, Sarah. We're right there with you.
;-/
You are right, but it looks like these people tend to make the SAME mistake AGAIN. The Banking Queen wants more subprimes and the Present wants another stimulus. I think Einstein had a quote on this about stupidity being doing the same thing over and over and expecting a different result.
Sarah can start with this subject and proceed to cleanup RINOs and RATs, scream, scream, scream!!!
Thanks for the thread. Great information that confirms what many of us thought.
Thanks for the links to the actual report.
ping
What's your point?
Excellent post
Thank You
Bump for when I get out of bed.
Can they print this ONE SENTENCE and put it in the mail to ALL? Maybe enough of the obamabots will read it and — nevermind — they’ll never understand...
AGAIN !!!! For a memory wake-up-—————
The current meltdown in the mortgage industry is a direct result of giving mortgages to people who could not pay them back, a practice protected by Congressional Democrats.
Barack Obama the largest recipient of political funds from mortgage giants Freddie Mac, Fannie Mae.
Too little, too late. This is just another example of “we’ll do what we want and ask forgiveness later.” They knew it was happening all along, and this report is the first step in them “asking” forgiveness.
That mindset is rampant among those “in charge”. I once worked at a major university, for one of the most prominent executives on campus, and he would continually say, “who cares — we’ll do what we want and ask forgiveness when we’re caught.”
The same point as the editorial...trying to make Bush and Republicans as responsible for the FM/FM mess as the Democrats is the MSM spin, and repeating it makes Issa nothing more than a tool for the Democrats.
Okay, ignore the facts. I don't really care anymore. Some people refuse to see the truth. They were ALL responsible. Bush included. Go read his speeches about using tax dollars to subsidize down payments for these loan. Go read in his speeches about home ownership for these people who couldn't afford it.
self bump
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