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.”
BTTT!
Brilliant thread !
“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.”
Ping
http://republicans.oversight.house.gov/
In The News
Report: The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008
Tuesday, July 07, 2009
WASHINGTON. D.C. – A report released today by the House Committee on Oversight and Government Reform finds that the housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market. The report’s findings are particularly significant and relevant since President Barack Obama’s announced financial reform initiatives do not include reforms to address flawed government housing initiatives.
http://republicans.oversight.house.gov/media/pdfs/20090707HousingCrisisReport.pdf
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.
The talking heads on the MSM will be all over this.NOT
With the rats in control of everything, nothing will be done to rectify this, nothing, it will continue open loop until all the wealth of the people is gone..
Well, finally some truth from our Washington politicians about what actually happened. From the Introduction (below), it looks like this is a report very much worth reading.
Bear in mind that this is detailed Congressional report about the underlying infractions of Freddie, Fannie, and pols like Barney Frank.
It’ll be interesting to see how much coverage it has gotten or will get int he MSM this week.
Prediction: none.
http://republicans.oversight.house.gov/media/pdfs/20090707HousingCrisisReport.pdf
The Role of Government Affordable Housing Policy in
Creating the Global Financial Crisis of 2008
STAFF REPORT
U.S. HOUSE OF REPRESENTATIVES
111TH CONGRESS
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
JULY 7, 2009
INTRODUCTION
The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities for more Americans. This intervention began with two government-backed corporations, Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, creating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses. Government intervention also created “affordable” but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage. Finally, government intervention created a nexus of vested interests – politicians, lenders and lobbyists – who profited
from the “affordable” housing market and acted to kill reforms. In the short run, this government intervention was successful in its stated goal – raising the national
homeownership rate. However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy. While government
intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.
[snip]
In recent months it has been impossible to watch a television news program without seeing a Member of Congress or an Administration official put forward a new recovery
proposal or engage in the public flogging of a financial company official whose poor decisions, and perhaps greed, resulted in huge losses and great suffering. Ironically,
some of these same Washington officials were, all too recently, advocates of the very mortgage lending policies that led to economic turmoil. In a number of cases, political officials even engaged in unethical conduct, helping their political allies, family members
and even themselves obtain lucrative positions in the mortgage lending industry and other benefits. At a time when government intervention in private markets has become
alarmingly common, government “affordable housing” initiatives offer important lessons about the dangers of government efforts to manipulate or conjure outcomes in the market.
Obama must have got it. But he wasn’t born yet so it’s not his fault. Dictatorship is the only remedy. /sarc
Bookmark
Hit a few links and you can get the PDF report of about 26 pages, print that sucker off and pass it out.
The report is much better than the CNS news article above, which oddly does not name the report or point to its location.
It took some digging to find it!
bookmark
>>>>> The talking heads on the MSM will be all over this.NOT <<<<<
Agreed. Until this thread I hadn’t heard a single peep.
Ping
for later
Fire up the crickets!
All of which ignores that the Republicans, from George W. Bush to House Representatives and Senators with oversight responsibility repeatedly called for increased regulation of Fannie and Freddy, only to be shouted down by the House Queer in Chief (Barney Frank) and the race-baiting members of the Congressional Black Caucus (most notably Rep. Meeks {D} and Rep, Maxine Waters {D}) whose repeated cries that basically 'These requests for additional regulation are just Whitey keepin' the po' man down!'
See the shocking truth here, on video:
http://www.youtube.com/watch?v=_MGT_cSi7Rs
No worse or more vile hypocrite exists than a prominent race-baiting black shouting "RACIST!", and, in doing so, creating a racist-divide class war that wouldn't have existed if they had just kept their big mouths shut.
These people should be publicly flogged, tarred, feathered, and run straight into jail for destroying the American Dream for at least one entire generation, and for ushering in the Manchurian Candidate who will destroy it for the rest of the generations to follow.
There is a prescribed remedy for national treason during wartime, and it is none too harsh.
;-/
“Fannie Mae and Freddie Mac were the chief culprits in the housing crisis...” and in other breaking news water is wet.
Has anyone seen barney lately?I think we need to have a little talk.
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