Saturday, September 27, 2008

The Fannie Mae testimony that will make you scream in anger

In 1997 President Clinton's HUD secretary, a man named Andrew Cuomo, claimed Fannie Mae had exhibited "racial discrimination" and proposed that 50 percent of the GSEs' (Fannie and Freddie) loan portfolio be made up of loans to low- and moderate-income borrowers by 2001.

Wayne Barrett at the Village Voice:

[Clinton appointee] Andrew Cuomo... made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that... helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration...into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

At the time, Democrat Cuomo said "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas..." Paul Krugman noted in the Times recently, "homeownership isn't for everyone," adding that as many as 10 million of the new buyers are stuck now with negative home equity... So many others have gone through foreclosure that there's been a net loss in home ownership since 1998...

From 2001 to 2008, the Bush administration tried more than 18 times to bring Fannie and Freddie under heel.

For example, consider October 6, 2004. Location: The House of Representatives. Richard Baker -- the Republican Chairman of the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises -- reads an opening statement as he issues his report on "Allegations of accounting and Management Failure at Fannie Mae."

The Capital Markets Subcommittee meets today for the purpose of receipt of a report from the Office of Federal Housing Enterprise Oversight. It is indeed a very troubling report. But it is a report of extraordinary importance, to those who wish to own a home, as well as the taxpayers of this country who would pay the cost of cleanup.

...The matters detailed in this report are serious and raise concerns regarding the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness of the Enterprise...

We all know that the Enterprise is very thinly capitalized, but the potential effect of requiring a responsible capital level would be to adversely affect earnings per share, and consequently make the payment of bonuses [to Fannie executives] much less likely...

I also wish to inform members of the Committee of another troubling incident, which I now choose to make public. About a year ago, I corresponded with the Director’s office making inquiry about the levels of executive compensation at the enterprise for the top twenty executives...

Now I understand why the Enterprise [Fannie Mae] was so anxious not to have public disclosure of compensation of an entity that was created by the Congress, and supported by the taxpayer... As a direct result of abhorrent accounting practices, executives have been able to award themselves bonuses they did not earn and did not deserve...

In 2003, the effort to rein in Fannie began in earnest with a GOP bill ("H.R. 2575—THE SECONDARY MORTGAGE MARKET ENTERPRISES REGULATORY IMPROVEMENT ACT"). The bill would have strengthened an independent regulator that did not have to kowtow to the political establishment. Like most efforts aimed at reformation of Fannie, the committee votes were typically on the straight party line.

Rep. Barney Frank (D-MA): I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger... I don't think we face a crisis; I don't think that we have an impending disaster. ...Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country.

Rep. Maxine Waters (D-CA): I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. [sic] ...These GSEs have more than adequate capital for the business they are in: providing affordable housing. As I mentioned, we should not be making radical or fundamental change... If there is anything to fix or improve, it is the [regulators].

Rep. David Scott (D-GA): ...affordable housing goals for both Freddie Mac and Fannie Mae require that 50 percent of units should be built for low-and moderate-income home buyers, and 20 percent for very low-income families... Yet, from 1998 to 2002, African-American home ownership rates only rose from 45.6 percent to 47.3 percent, less than 2 percent compared with the white average increase from 72 percent to 74.5 percent, huge gap remains. Clearly, the mission of Freddie Mac, and especially Fannie Mae, is to close that gap...

Rep. Gregory Meeks (D-NY): ...I have to go to another hearing, I will try to be just real quick... I am just pissed off at [the regulator] because if it wasn't for you I don't think that we would be here in the first place. ...we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum [to change the] mission of what the GSEs had, which they have done a tremendous job... There has been nothing that was indicated is wrong, you know, with Fannie Mae... The question that then presents is the competence that your agency has with reference to deciding and regulating these GSEs.

Franklin Raines, Chairman and CEO of Fannie Mae: ...In 1994, we launched our trillion-dollar commitment, a pledge to provide $1 trillion in financing for 10 million underserved families before the decade was over... In 2000... we launched a redoubled new pledge... to provide $2 trillion for 18 million underserved families before this decade is over. (I guess we didn't quite make it, did we Frank?) ...we are one of the best capitalized financial institutions in the world, when compared to the risk of our business...

Rep. Barney Frank (D-MA): I don't see any financial crisis.

Rep. Artur Davis (D-AL): A concern that I have... is you are making very specific... broad and categorical judgment about the management of this institution, about the willfulness of practices that may or may not be in controversy. You have imputed various motives to the people running the organization... That sounds to me as if you have gone from being a dispassionate regulator to someone who is very much involved and has a stake in this controversy... And I will follow up on Ms. Waters's point because I think it is very well taken: Her observation is that the political context surrounding your investigation was that serious doubts were being raised about OFHEO... In fact, frankly, doubts were raised about your leadership of OFHEO. And all of a sudden, the response to that is to produce an enormously critical report.

Franklin Raines, Chairman and CEO of Fannie Mae: ...these assets are so riskless that their capital for holding them should be under 2 percent.

This week even ex-President Clinton admitted that the Democrats were guilty of destroying Fannie and Freddie... and responsible for the current crisis that threatens to bring the entire U.S. economy to the brink of recession: I think that the responsibility that the Democrats have may rest more in resisting any efforts by the Republicans and the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.

Who were the top recipients of Fannie Mae's money-dispensing leaf-blower? The top three were Chris Dodd (D-CT), Barack Obama (D-IL) and John Kerry (D-MA).

And where are these Fannie Mae executives now?
  • Franklin Raines ($90 million in compensation): Economic Adviser to Barack Obama
  • Jamie Gorelick ($26 million): Major Democratic Fundraiser
  • James Johnson ($21 million): Adviser to Barack Obama
That's change you can bank on!

As recently as 2007, Gorelick -- who lives in a $1.7 million home -- was still donating money to disgraced Senator Christopher "Nero" Dodd, who fiddled while homes burned.

I have just one question for FBI director Mueller. Why aren't these people in prison?

Updates: Gateway Pundit has some ominous news regarding WaMu... and Dan Riehl parses a critical moment in the debate relating directly to the financial mess.

Hat tips: Naked Emperor News, Ann, Barking Moonbat, Country Store ("Jamie Gorelick: the pinup girl for Democrat foolishness strikes again") and the incredibly prolific, always on-point Gateway Pundit.
Linked by: The Anchoress, Gina Cobb, Liberty Peak Lodge and Madville. Thanks!


Stephen Krefft said...

Why did Bush expand this program to a thousand times its original size in 2003 under his "Road to Home" program?

Weird that you don't mention that.

Anonymous said...

I hope the heads of these agencies will be asked by congress to state, under oath, what campaign contributions they have made.

Anonymous said...

The Road Home program was targeted to Katrina victims - mostly disbursed to new Orleans area victims etc.
wiki 'Road Home'?
Bush did a good thing to help the victims - that is why you never hear of it. ;)

Unknown said...

@ Stephen Krefft,,, because Bush didn't expand these programs,,I have been a mortgage broker for 17 years and I know a little about it,,well a lot about it,, and these programs are the result of the Community Reinvestment act first signed by Carter, then added to by Clinton,,with Chriss Dodd and Barney Frank as the chief authors,,, Bush added nothing to the program and in fact tried top audit the program but was blocked every step of the way by the democrats,, wake up and stop wishing things were different because your ideology needs it... open you eyes

Anonymous said...

You should have mentioned the Role Jack Kemp played.

Anonymous said...

THEY GAVE LOANS to ILLEGALS and when the 06-07 McGrahmnesty FAILED .........BOOM the house of cards FELL

Anonymous said...

Bush, didn't expand the program, Democrats in Congress did and continued was their little piggy bank, not the president's. Bush got behind the proposed legislation immediately and promised to sign it if it was passed.

Stephen said...

And this is why sources are important - indeed Bush expanded Road to Home and was a primary driver of the housing bubble. Bush committed an additional 440 billion to Fannie & Freddie

Here is the link to the original article but a pay site