Where it all began
Barney Frank opposed President George W. Bush's plan to transfer control of Fannie Mae and Freddie Mac
Posted: Wednesday, February 18, 2009
Editorial, Mountain Democrat
Why is the financial system in such a pickle and why are there so many home foreclosures Ask Congressman Barney Frank, Mass. Ask Sen. Chris Dodd, D-Connecticut, financial gurus of Congress. Ask Bill Clinton, who was president in 1999.
A Sept. 30, 1999, New York Times story noted that the Fannie Mae Corp. “is easing credit requirements on loans that it will purchase from banks and other lenders.” It was a “pilot program” in 15 states.
“Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth.”
The article quoted Fannie Mae chairman and chief executive officer, Franklin Delano Raines, as saying “... too many borrowers ... have been relegated to paying significantly higher mortgage rates in the so-called subprime market.” Fannie Mae is short for the Federal National Mortgage Association.
Raines assumed his position in 1999. He took an “early retirement” from his position as CEO in December 2004 when the U.S. Securities and Exchange Commission started investigating accounting irregularities. He is accused by the Office of Federal Housing Enterprise Oversight, the regulating body of Fannie Mae, of the shifting of losses so senior executives, such as himself, could earn large bonuses. Raines was associated with Barack Obama’s presidential campaign, but that ceased after it was revealed Raines had got a below market rate mortgage from Countrywide chief executive Angelo Mozilo. So did Sen. Dodd.
What is interesting about the 1999 New York Times article is the writer’s clear statement of the hazard behind Fannie Mae getting into subprime mortgages.
“In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s,” wrote Steven A. Holmes.
In 2003 Barney Frank opposed President George W. Bush’s plan to transfer control of Fannie Mae and Freddie Mac (Federal Home Loan Mortgage Corp.) from Congress and the Department of Housing and Urban Development to the Treasury Department.
Frank’s response: “These two entities ... are not facing any kind of financial crisis ... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
On Sept. 7, 2008, the Federal Housing Finance Agency basically seized Fannie and Freddie, taking away control of them from the congressmen and senators who received campaign contributions from Fannie and Freddie, with Dodd receiving the most, triple what Frank received. The two lending agencies - which together had control of half the $12 trillion U.S. mortgage market, were essentially insolvent.
The road to financial hell was paved by government intervention and two lending agencies with implied government support that were too big and lacked competition.
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