The Truth About Obama, Fannnie, Freddie, and Our Crisis
Posted by Peter Lawler
...is told clearly and concisely by that honest liberal Free Frank Warner. I wish McCain would be reading what Frank has to say right about now. He might even be able to make the case that our deepening financial crisis should actually be making people more inclined to vote for him.
8:50 PM / October 15, 2008
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Peter, Warner's account is entirely correct, from my perch at HUD watching the GSE mortgage crisis unfold, but he makes one error, where he writes: "she hadn’t heard of Rep. Barney Frank or Sen. Christopher Dodd’s relentless push, for at least 15 years, to force Fannie and Freddie to make about $1 trillion in high-risk home loans." He repeats that later on. As a matter of fact, Fannie and Freddie wrote between half a trillion and a trillion dollars of these mortgages IN A SINGLE YEAR, 2005, in their effort to meet the law's affordable housing quotas. Generally they wrote roughly half a trillion every year, certainly in 2006 and 2007. All this information is public data from reports and Press Releases available at HUD's website. The amount of rotten mortgage loans Congress forced the GSEs to write is astounding over 10 or 15 years--and moreover, it amounts to about only 25 to 40% of all the bad mortgages that were written by mortgage banks because of CRA and which Fannie and Freddie never saw. We are talking upwards of 15 trillion dollars in mortgages to "underserved communities" over a decade, sent out as toxic Mortgage Back Securities to investment houses around the world, which began this year's credit collapse.
Anonymous, I'll take your word for it on the total for the high-risk loans. But most of the news reports indicate that Fannie Mae and Freddie Mac had a total of $5 trillion in home loans, and about $1 trillion were of the high-risk variety.
I'll be happy to correct that.
I have two questions for you, if you're tuning in again here:
1. The Peter Wallison story the other day said, "If Sen. Obama were truly looking for a kind of deregulation that might be responsible for the current financial crisis, he need only look back to 1998, when the Clinton administration ruled that Fannie Mae and Freddie Mac could satisfy their affordable housing obligations by purchasing subprime mortgages." Who in the Clinton administration would have "ruled" to allow the purchase of subprime mortgages?
2. Why couldn't the Republicans stop the reckless lending at Fannie and Freddie?
"Reckless lending" used to be allowing the financially disadvantaged pursue the American Dream or owning a home. How were Republicans going to take that on and win, politically? Besides, the hope was that lending to the poor would help them become more responsible members of society. The more people America has in the ownership class, the better. Folks who own things like houses and property are more likely to become conservative, because they have a stake in society. Doesn't any of this sound familiar? The whole point of government involvement in the mortgage market was to allow people who would otherwise be ineligible for home loans to bypass the market. We extended that franchise to the breaking point. The breaking point came at the inevitable time when housing prices began to fall. There was so much money in the housing market that too many homes were built and supply exceeded demand. The whole mess collapses and since government backed loans inflated the market, it is an even bigger mess than it could ever have been otherwise.
If Fannie and Freddie were only quasi-government agencies, what were Republicans going to be able to do, anyway? I mean, aside from the political implications of trying to stop the whole thing, what was GWB going to do in a practical way? Really, I would like to know.