Tracking the Mess of Fannie and Freddie

Photo Credit: AP Photo/J. Scott Applewhite. Troubled skies over the Capitol

To blame the Bush Administration for the failures of Fannie Mae and Freddie Mac takes incredible arrogance on the part of Democrats, and shows a prodigious measure of moronic crisis management on the part of Republicans. If you want to scream every time you hear "both sides are at fault," the following will not make you feel any better, but does provide some documented facts to keep handy. We all know these facts. We need to remember them as the election draws near.

 1) We can begin documentation in May 1999, "Black and Latino homeownership surges - the number of African American...nearly three times as fast as whites:" The LA Times - Ronald Brownstein:

These numbers are dramatic enough to deserve more detail. When President Clinton took office in 1993, 42% of African Americans and 39% of Latinos owned their own home. By this spring, those figures had jumped to 46.9% of blacks and 46.2% of Latinos.

All of this suggests that Clinton’s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. 

The bottom line: Between 1993 and 1997, home loans grew by 72% to blacks and by 45% to Latinos, far faster than the total growth rate. In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. 

It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.

Today, in 2008, we have the housing, mortgage and banking bailout. We are rescuing the some of the most corrupt business men and women in our midst. Those of highest profile are undeniably Democrats.

2) Read the chronology of Bush administration action directly from The White House, as the Administration tries to put the brakes on Fannie Mae and Freddie Mac - with no success.

3) Michael Barone at U.S. News & World Report - Democrats Were Wrong on Fannie Mae and Freddie Mac:

Seventeen. That's how many times, according to this White House statement (hat tip Gateway Pundit), that the Bush administration has called for tighter regulation of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Congress has cooperated only once. In spring 2007, as House Financial Services Committee Chairman Barney Frank likes to point out, the House did pass a bill in response. The Senate did not act until 2008; Senate Banking Committee Chairman Christopher Dodd spent most of 2007 camped out in Iowa running for president. 

The legislation passed by Congress in 2008 enabled Treasury Secretary Henry Paulson to put Fannie and Freddie into federal conservatorship this summer when they failed. But it didn't prevent them from spewing a huge amount of toxic waste, in the form of subprime and Alt-A mortgages, into our financial institutions from 2004 to 2007. 

As Stephen Spruiell points out in The Corner on National Review Online, Fannie and Freddie spewed out $1 trillion worth (face value) of subprime mortgages between 2005 and 2007. That's a whole lot of toxic waste.... Much if not all of that could have been prevented by a bill cosponsored by John McCain and supported by all the Republicans and opposed by all the Democrats in the Senate Banking Committee in 2005. That bill, which the Democrats stopped from passing, would have prohibited the GSEs from speculating on the mortgage-based securities they packaged....

Barone's piece ends with this link to a Fox News documentary, which I've seen and recommend.

 4) In 2006, Senator John McCain signed a letter calling for "regulatory reform legislation" to clean up Fannie Mae and Freddie Mac. The letter, addressed to the Senate Majority Leader, and the Chairman of the Banking, Housing and Urban Affairs Committee, was signed by nineteen other Senators. It DID NOT contain a single Democrat name. The letter said that it was "...vitally important that Congress take the necessary steps to ensure the [Fannie Mae and Freddie Mac]...operate in a safe and sound manner." The letter asks: "...who would actually pay this debt if Fannie or Freddie could not? See a copy of the letter at Human Events.

 5) On September 11, 2003, The New York Times reported that the Bush Administration was recommending "significant regulatory overhaul in the housing finance industry...".

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

The NYT reports the deep Democrat unrest at any attempts to regulate the mortgage giants:

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats... ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed:

I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,' Mr. Watt said.

After the statements of Frank and Watt at a Congressional hearing on Sept. 11, 2003, Rep. Michael Oxley (R-OH), Chairman of the Financial Services Committee commented:

We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.
These irregularities, which have been going on for several years, should have been detected earlier by the regulator, he added.

Treasury Secretary John Snow was unhappy about Presidential powers granted in the plan:

Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

Today, it is apparent why President Bush was concerned about taking the blame for the bald corruption at these. The NYT opined:

The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

6) On May 25, 2006, McCain gave this speech on the Senate floor in support of S. 190: Federal Housing enterprise Regulatory Reform Act of 2005 - which died in Committee in January 2007.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

7) Then there's the money. What about the money? Who got what from Fannie Mae, Freddie Mac and their employees? From 1989-2008, OpenSecrets.org lists Senator Obama as the No. 2 recipient, receiving $126,349.00 total. Keep in mind that Obama has only been in the Senate three years. John McCain has received a total of $21,500.00 in all the many years he has been in the House [1982] and Senate [1986]. McCain's PAC has received $0. The entire $21,500 was donated by employees. Senator Chris Dodd (D-CT) chairs the Senate Banking, Housing and Urban Affairs Committee. He is the No. 1 recipient of campaign donations totaling $165,400.00. 8) President Bill Clinton signed a bill to promote low-income home ownership - a bill which Business Week called "a creative measure," to allow people who could not afford a mortgage, to have one anyway.

 If you are an undecided voter, remember this when you get to the polls, because it is all about corruption and pandering for votes.