-- Ronald Wilson Reagan
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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 administration’s National Homeownership Strategy, citing President Clinton’s directive to “lift America’s 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 can’t 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 Frank’s 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.”
ping
Barack Obama, The Democrats and the Housing Crisis
Filibusterd by Dodd in 2004, and killed in committe by Democrats in 2005, 2006.
..............
http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
I’m on to it. Thanks.
You got that right. Within months of the reports of the roles the FMs and the gov had in the crisis, the leading roles as it were, Big Media made it all disappear down the memory hole. Then all you heard was the role of "greedy bankers and financiers." The role of the government in the whole thing was never mentioned. Barney Frank, Chris Dodd, Franklin Raines never existed. At least not their parts in the disaster. And they were the major causes of the whole thing.
You should re-read the O’s Chi-town days re: housing, etc.
I suggest these neglected must reads (spread them around again please:
BTW, John Harris (Blago/O fame) pleads guilty on Seat Gate.
That’s about 7 or 8 out of the circle (off the top of my head).
The fruit of fascism. Few will learn the lesson.
So we just need more of that federal government intervention to fix the problem. Right?
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.”http://www.ibdeditorials.com/IBDArticles.aspx?id=314582096700459
What's your point?
Did you read the IBD column? It actually cited as an example how an article stated that Bush raised a quota to 56 percent (but fails to mention that this move raised it from 50 percent to 56 percent, and that it was clinton that CREATED the previously non-existent quota and raised it to 50 percent in the first place).
So the paragraph you cited makes it sound like Bush is responsible for most of the increase in the quotas when in fact clinton CREATED the quotas and set them ridiculously high while the HUD department under Bush slightly increased the quotas from the clinton quotas.
Woody Guthrie:
A friend of mine bought an automobile
At a dollar down and a dollar a week.
Every time he turned the wheel,
It was a dollar down and a dollar a week.
He went riding down the road,
Pinched this girl upon her cheek.
Speed cop took him to the judge,
He got a dollar down and a dollar a week.
Sixty days he laid in jail,
At a dollar down and a dollar a week,
Another man was a lovin’ his gal,
At a dollar down and a dollar a week.
When he got out he shot the man,
And laid him in the graveyard six feet deep.
And when he bought the graveyard spot,
it was a dollar down and a dollar a week.
Ade olay E-E
Ade olay E-E
Ade olay E-E
E-E-E-E-E (repeat)
Frank, that lying POS, claimed a couple of months ago that the funding was for the Catholic Church!
Unfortunately, when it got to the House floor, right-wing Republicans added language that would have prevented the Affordable Housing Trust Fund from working, by excluding organizations that they distrusted, such as the arm of the Catholic Church that builds affordable housing. I voted against the bill in protest of those restrictions, while making it clear that I was for the reforms it otherwise contained.
No, the paragraph makes it sound like the Bush Administration raised the quotas to the highest point they’d ever reached.
How much criticism does someone who throws the last straw on the overloaded camel’s back deserve, especially when they could have unloaded the camel instead but chose not to?
It’s probably a matter of opinion.
Amen and amen! I was there and saw it with my own two eyes.
self-ping!
If you read the report, it's the Bush administration's version of events that was peddled around when the bubble burst right at the end of Bush's second term. Blame is placed squarely on Clinton's CRA, Franklin Raines, etc. The whole tawdry yarn is there.
Naturally, there's no mention of Bush's Partnership for Prosperity Agreement (with Mexico), the New Alliance Task Force and the loosening of the banking laws to allow, nay, enthusiastically encourage Mexican illegal aliens into the US banking system using only a Matricula Consular card and a US ITIN.
Bush was supposed to be out of office and Obama was supposed to take the fall for the economic crash. But, the economy crashed before Bush left office, so there's no one else to blame, but him.
This report wants to blame the GSEs. But if you read the movers and shakers behind the the P4P and NATF, it was the banks who wanted to cash in on the illegal alien market who were spearheading this activity. We're talking about a market in the hundreds of billions of dollars. Fannie and Freddie, i.e.: the US taxpayer were always intended to be the rubes left holding the bag for Bush's banker buddies fleecing of the American taxpayer.
This report is just so much more covering of Bush's tracks.
Did you notice the report mentioned nothing about Bush's Partnership for Prosperity Agreement (with Mexico), the New Alliance Task Force and the loosening of the banking laws to allow, nay, enthusiastically encourage Mexican illegal aliens into the US banking system using only a Matricula Consular card and a US ITIN.
I can post the details here, if you'd like. Or, you can visit my FR homepage. (See: Ol' Dan Tucker)
And, the Republicans in Congress were on-board with the plan.
Go read it for yourself.
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