The Fannie and Freddie debacle: An autopsy
GOP members of the House Oversight Committee have put out a report analyzing Fannie Mae and Freddie Mac’s role in the housing meltdown.
The Hill summarizes:
“The housing bubble that burst in 2007 and led to a financial crisis can be traced back to the federal government intervention in the U.S. housing market intended to help provide home ownership opportunities for more Americans,” declares the first sentence of the GOP Oversight and Government Reform report.
The report tries to center debate on government involvement, rather than Wall Street.
“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 a public flogging of a financial company official whose poor decisions, and perhaps greed, resulted in huge losses and great suffering,” the report states.
“Ironically, some of these same Washington officials were, all too recently, advocates of the very mortgage lending policies that led to the economic turmoil.”
The report continues the theme of Republicans seeking to pin the housing crisis on Fannie and Freddie, now completely owned by the government. The GOP sees the two mortgage giants as having pumped air into the housing bubble by offering and subsidizing high-risk loans in an effort driven by Democrats and the Clinton administration to increase homeownership, particularly among minorities and low-income households.
Democrats have defended Fannie and Freddie for trying to increase homeownership, while criticizing various polices at the two firms. They’ve put more of the blame for the housing crisis on poorly regulated Wall Street banks.
House Financial Services Committee Chairman Barney Frank (D-Mass.), who comes under some criticism in the GOP report, has said more foreclosures were caused by unregulated entities rather than Fannie and Freddie. He has also noted that Republicans were in control of Congress from 1995 to 2007, when the housing bubble was created.
The GOP staff report ties the Obama administration to Fannie and Freddie by noting its connections to former Fannie Mae President Jim Johnson, who was involved in President Obama’s search for a vice president, as well as White House Chief of Staff Rahm Emanuel’s appointment to Freddie Mac’s board.
You can find the whole report here. Key facts and conclusions:
* Political pressure led to the erosion of responsible lending practices:
In the early 1990s, Fannie and Freddie began to come under considerable political pressure to lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers. (p.6)
* Lower down payments led to housing prices that outpaced income growth: Once government-sponsored efforts to decrease down payments spread to the wider market, home prices became increasingly untethered from any kind of demand limited by borrowers’ ability to pay. Instead, borrowers could just make smaller down payments and take on higher debt, allowing home prices to continue their unrestrained rise. Some statistics help illustrate how this occurred. Between 2001 and 2006, median home prices increased by an inflation-adjusted 50 percent, yet at the same time Americans’ income failed to keep up. (p. 11)
* Members of an “affordable housing” coalition shared profits with political allies to help legitimize their business practices: Fannie Mae created and used The Fannie Mae Foundation to spread millions of dollars around to politically-connected organizations like the Congressional Hispanic Caucus Institute. It also hired well-known academics to give an aura of academic rigor to policy positions favorable to Fannie Mae. One paper coauthored by now-Director of the Office of Management and Budget Peter Orszag, concluded that the chance was minimal that the GSEs were not holding sufficient capital to cover their losses in the event of a severe economic shock. The authors suggested that “the risk to the government from a potential default on GSE debt is effectively zero,” and that “the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.” (p.7)
* The Government Sponsored Enterprises led the way into the housing crisis: Fannie Mae and Freddie Mac were leaders in risky mortgage lending. According to an analysis presented to the Committee, between 2002 and 2007, Fannie and Freddie purchased $1.9 trillion of mortgages made to borrowers with credit scores below 660, one of the definitions of “subprime” used by federal banking regulators. This represents over 54% of all such mortgages purchased during those years. (p.24)
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Barney Frank says let’s do it again!
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And didn’t I read that Barney Frank wants to do a modified version of lax lending again?
fannie, freddie, barney, la ratza, and others all have a part in this debacle…
When Obama gives me my free brand new $400,000 house, make sure he includes a nice shiny big new free Cadillac Escalade and a free big screen TV too! I don’t wanna be left out!
Nice to see they finally got around to admitting what all of us have known for months, if not years. Now if they’ll use this as a GOP platform…(crickets)
Yep, it is important that all complicit in the housing debacle be pointed out.
What would be terrific is if those who are complicit acknowledge their roles. Maybe learn something from their contributory actions, or inactions. Then maybe we can correct the system, establish reasonable standards and move forward. Oh yeah, and follow the rules using common freakin’ sense.
To be safe, just vote out everybody in washington. PERIOD.
sonofdy said:
I completely agree and outlaw them all from ever holding any public office ever again. I still think every interested person in every state in the union should just start up a re-call petition drive for every rep in every state, even if it does not gain any traction it still sends a message.
It would be a nice gesture by all these fools to spend a few moments working together on these problems. If they spent as much time resolving issues as they do blaming each other and covering their own traseros, we would all be better off. But, as my ladyfriend says, I sometimes fantasize too much. Self is more important to them than service.
This is the old, old story.
Government distorts a market.
The market conforms to the distortion, often creating new instruments to accommodate the new circumstances.
Eventually, the distortion becomes insupportable, and there is a collapse, or correction.
Government blames the market for failing, when the only failure was in the government.
Government accretes more power in order to prevent whatever bad thing the market did, enabling it to cause larger future distortions in the markets.
Ragspierre #9–Yes, an “old, old story.” However, unlike many parables of old, few if any lessons have been learned. And those learned are often used to improve on previous distortions.
1. Can you ever remember a Democrat admit to being or doing wrong?
2. Barney Frank has been confronted and had plenty of opportunities to acknowledge even the slightest mistake. He has not and will not.
They’re all like children with crumbs on their chins and mouths full replying “no” when asked if they ate the cookie.
Of course he says it! Why wouldn’t he? There’s no consequences for these morons. Don’t look now, but the 3rd stimulus package is being packaged as we speak. Sign.Me.Up!
DITTO #9 & 10. how many times must we relearn the lessons that government does not create wealth, it confiscates the wealth of others and redistributes it to those it deems needing. in the housing bubble, it deemed the poor credit risk poor needy, so it interveened, and voila. in healthcare, it deems today that the people who would rather buy a big screen than health insurance because they can always go to the emergency room for health care, are needy, so those who pay taxes and insurance can subsidize those who don’t. in energy use, we have the government flying all over creation and driving gas guzzling suburbans tens of millions of miles a year, telling the energy producers they have to pay for gubmints lifestyles of the rich and infamous. WHAT A COUNTRY!
They are trying to reinflate the housing bubble with Frank’s condo scheme and section 502 loans.
http://www.rurdev.usda.gov/rhs/sfh/brief_rhdirect.htm
“Families must be without adequate housing, but be able to afford the mortgage payments…Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories.”
Applicants must be able to afford a house, but not have one for some reason and also need a subsidy to get one. They also must have decent credit, but for some reason be unable to obtain loans.
They must think we’re pretty stupid to accept nonsense like this.
There was a time when I thought that many of these Demoncrat players were simply economic idiots who had no idea of the effects they were causing. That may be true of a very few of them.
The truth, I am now convinced, is that the main players know exactly what they are doing, exactly how it will effect the economy…how it will hurt people…and exactly how they will lie, spin what happened, and exploit the results.
In other words, these are not simply misguided people who have no understanding; they are fundamentally evil people who know the damage they wreak, and do it by design.
Boy, talk about a V8 moment!!! This is a conclusion that should have been settled months ago… As housing prices in PHOENIX rose 55% in 2006, and people were standing in driveways bidding on houses, a novice like myself, saw the WRITING ON THE WALL…Like the man said,”It ain’t rocket surgery”!!!
and Rags, Obama has gotten “the old story” down to a science. There’s our hopey, changy.
Don’t houses create more global warming, yet the democrats want more people in them?
I’m confused.
Hear! Hear!
THE ONE is stuck on stupid…in the 60s. Which is MUCH worse than just stuck on stupid.
He has emerged today in firm support of the WRONG side in Honduras. His affinity for Marxists and totalitarians gets more clear every day.
He is a 60s radical who never woke up, never examined the slogans, never thought critically about the words of the protest songs, never saw the world except through an anti-American set of filters.
He is fast making America an unrecognizable place, which is, in some respects, a good thing. It will take that to get most of us off our dime and into activism.
jangar nails it, above.
A smoking gun that Michael Steele will certainly ignore.
The housing catastrophe was a perfect storm of Democrat social policy gone wild and Republican financial deregulation. Both parties genuflected before the Great God Greenspan. At least with this report, Republicans show they have a clue. Once they substitute “policing” for “regulation”, they will be on the right track to restoring sanity to finance.
Please explain what you mean by that, and the mechanism that caused any bad thing you see coming from it.
OT: Dow is resuming it’s downward trend. That peak of 8800 about month ago will be the the high point for as long as Obama is in office. Investors everywhere can no longer ignore that this administration and it’s policies are a disaster and everything they are proposing will only cause further damage. The economy is sinking with no recovery in sight and no amount of talk about hope, change and green jobs is going to be able to cover that up, at least to people that make decisions based on facts instead of empty rhetoric. Will American be able to draw themselves away from the MJ freak show and pay attention to what is happening around them?
They will when it begins to create personal pain for them.
There’s objecive reporting for you. Those darn Republicans, seeking to pin the housing crisis on the government!
The MSM will bury this report…
In truth it was government and “private industry” working together which created this mess. Goldman-Sachs possesses as much political power as any hundred members of Congress.
The problem for the Democrats is that they cannot specify which particular evil capitalists are responsible, because it turns out that the ones responsible were all closely tied to the Democratic Party.
Why the GOP is unable to point this out is a mystery. I suppose it’s because they are are stll hooked on the idiotic “government bad/capitalists good” claptrap they picked up from Rand. Admitting that capitalists are left-wing would explode their entire world-view. So both parties are comfortable in their denial of reality for different reasons.
I think the clap-trap is yours.
Rand was never that simplistic…or stupid.
Neither was Adam Smith.
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GO RAGSPIERRE #15! Even a stopped clock is right twice a day. The “democrats” / liberals / socialists / marxists / statists / communists are never right.
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Rep. Bawney Fwank (d-Mass) wants to do it again because it feels so good! (To Him).
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John Bibb
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Obummer WISHES he was a 60s radical. He was a child in the 60s. He’s even worse than actually being a full-on 60s re-tred because he doesn’t even have the excuse of nostalgia. He is a walking tragedy for America.
Barney Frank wants to mess with Fannie Mae & Freddie Mac again.
Donks want to do the “stimulus” again.
I am getting a much better idea of what it must have been like for the Marines to clear the Japanese off of Iwo Jima and Okinawa: the enemy designed a trench and tunnel system that made it easy for them to pop up again in supposedly “cleared” areas, forcing them to be retaken.
It’s the same with donks: you never get anything finally resolved. If they can’t hang with you in debate, they just shift to another rationalization before circling back later to their initial position.
What we need is the equivalent of a flamethrower and a bulldozer-tank to clean out the donks for good. If elections won’t do the trick, then another revolution will ultimately be necessary.
Elections WON’T effect the change we need. We have proven that over decades.
The problems in our system are structural, and took years of careful, patient Progressive incursion to reach this point.
A revolution IS required, but it need not be violent or destructive. We know how it can be done. We simply have to decide if we…personally…are prepared to make it happen.
We refinanced recently and I got notification yesterday that Fannie had bought my mortgage…to be serviced by Chase. Y’all should be happy to know that there’s at least one mortgage in that fishbowl that’s being paid regularly. You’re welcome.
I’m living on disability, under the poverty line, where do I go to get a free house, GivermentMotors suv that get’s 15 mgp and do not forget the 52 inch plasma flat screen…think 52 ” is about average isn’t, I don’t want more than I can I should have…it’s all free after all, is it not? Does it matter that I’m white, think I’d get preferential treatment, no? (all sarcasm of course)
What I want to know is, when does the DOJ handcuff them during a legislative session, march them down the steps through a waiting crowd of reporters and jeering citizens to take their places in adjoining cells with Bernie Madoff?
What congress is doing today reminds me of the old adage ” you can’t teach old dogs new tricks.” The idiots never learn!
Newsflash: GOP blames Democrats for economy!
Frank and Dodd were the prime movers in this whole problem. The scary thought is that while everyone else suffers they are still making policy. It that doesn’t bother anyone, it should.
Newsflash – RSS is still stupid.
Yeah, I didn’t see anything in the report I didn’t already know.
A friend in our church recently retired from Countrywide. He say’s Countrywide got into trouble for following the mandated govt. regs, not because of under regulation.
Fannie and Freddie and thier congressional supports are the key payers. F&F packaged the mortgages (good and bad) into bundles and sold them off to investment firms. When the bubble poped, the investment firms were left holding the bag. It was unfortunate for AIG that they had insured many of these F&F bundles. Look at the payoff to Riens and company and how much Dodd, Franks and Obama received from these quasi-private enterprises. And now it is that we have Inspector Generals being laid off because of IRRUGULARITIES in their political thinking. Whew!
It was way more than that. AIG sold over 400 Bil in “credit default swaps”, You could buy this genious “financial product” if you didn’t even own the paper they represented. Problem was AIG didn’t have the capitpl to back the swaps. Kind of a Vegas deal. They didn’t think the bubble could bust. This stuff was not regulated, and is where the lack of regulation caused a mess.
Somehow Obama during his BRIEF time as a senator managed to rack up enough donations from Fannie Mae and Freddie Mac to put him into the NUMBER THREE SPOT – right behind Dodd and Kerry who have been on the banking committee for a while. Obama, a junior senator, was never even on the committee! Smells FISHY huh? …very fishy! (Is there more to Franklin Raines’ criminal activity that is yet to be discovered?)
This reminds me of something that was reported as Sarah Palin’s “first Gaffe.” She said that Fannie and Freddie had “gotten too big and too expensive to the taxpayers.” The Left was all over her for making such a “stupid” statement. Even a conservative economist jumped on the band wagon to say that Palin didn’t know what she was talking about. Do you think Sarah will ever see a retraction or an apology from them?
I’ve always wondered why common sense statements are always attacked by experts and intellectuals as stupid and uninformed.
That can’t be true! It was a free market failure! That’s what the news keeps saying!
The financial industry is the most heavily regulated in the industry. That’s the whole problem. The business model is desperately outdated, but the laws create horrible entry barriers to new solutions, and the lack of competition creates huge dinosaurs that are “too big to fail.”
Marco – Agreed about the financial industry, but the CDS’s were a new “financial product” cooked up by the same geniuses at AIG who got the taxpayer funded bonuses to fix their own mess. CDS’s were not regulated as they were a new product, and they were sold without capitol to back them.
Barney back door Frank, and other Demorats are enemys of what this country stands for. It does not stand for socialism, or Marxism.
You want a house? Well, get off your arse and work for it like I did.
The Mortgage meltdown is perhaps easier explained to people using an internet analogy.
1. Some bozo programmers in Congress (otherwise known as Democrats such as Barney Frank, Obama, Dodd, etc), created a banking virus and loaded it into Freddie and Fanny.
2. This virus forced lenders to offer loans to folks that couldn’t pay them back.
3. The virus then bundled these bad loans into large groups of bad investments that were spread around the world’s banking networks.
=======
Yes, banking firewall could have prevented opening Democrat’s banking virus — but they didn’t. Like the typical hapless computer user who innocently visits a website from a trusted source that promises nirvana and bliss for all, the banks just started opening loan after loan after loan. However, it wasn’t the banks that created and marketed the virus — that largely belongs to a string of Democrats over the past 30 plus years…
Then he’s lying to you. Head over to Steve Sailers to get the lowdown on this story.
Rand was both simplistic and stupid, not to mention economically illiterate. Who the hell takes ecomomic advice from a crappy novelist?
Adam Smith had a poor opinion of capitalists.
Riiight! So capitalists are secretly right-wing, they just pretend to be left-wing for some reason which only you know.
Exactly. It’s a familiar song of Dems and RINO’s.
And Jangar…
If we can avoid getting a RINO as a candidate, that might actually be a reality. If only Steele would resign his post, we stand a better chance.
Good point.
Doesn’t the current scale of immigration, both legal and illegal skew the housing market as well and create more global warming , at least in the USA? Yet the dems want more third world people in the country and in houses they can’t afford.
The RNC will work mightely to ensure the nomination of a RINO, or at least a reasonable facsimile.
Credit where credit is due. At least he didn’t say anything bigoted this time.
Sad thing is, it is a GOP report, not a congressional report. So what does that say? Democrats don’t agree with that assessment? At all? Not even a little bit?
Its the cover-up stupid.
Barney’s Freddie has a thing for Fannie.
You bet’cha…they’ve held the congressional purse since 2006!
Now, go back to your litterbox.
Right at the moment I am predicting an echo boom/bust. We are seeing some really strange lending practices and bidding wars on bankruptcy and foreclosures.
Before I was to buy a bankruptcy or foreclosure I WOULD spend the money on a through home inspection. These are the cases where people stop maintaining the home and sometimes do subtle but clever sabotage. If you find human waste in the walls, soda cans in the sewer line or stripped electrical wires someone was upset.