Well said Beverley. I am so sick and tired of senators pretending to give a fig. Either say you will vote yes, spit out what you want in return for your yes vote, or just say you are going to vote no. Just stop playing political games. The American public are fed up with the lot of you as it is.

The Real Story About Fannie Mae that know one wants to talk about. How gullible people in this country are. It's why we're in the trouble we're in. Americans - so overrated insofar as intelligence and telling the truth goes.

Private sector loans, not Fannie or Freddie, triggered crisis

David Goldstein and Kevin G. Hall | McClatchy Newspapers
last updated: November 24, 2009 07:57:12 AM

WASHINGTON — As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

•More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

•Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

•Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages.

"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.

Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.

About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.

Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.

Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

Pat, Boston, MA:

"Private sector loans, not Fannie or Freddie, triggered crisis"

If that were true, why are Fannie and Freddie in need of a minimum $400 billion taxpayer bailout that might end up costing $1 trillion?

Pat, Boston, MA

The Real Story About Fannie Mae that know one wants to talk about. How gullible people in this country are. It's why we're in the trouble we're in. Americans - so overrated insofar as intelligence and telling the truth goes.

Private sector loans, not Fannie or Freddie, triggered crisis

David Goldstein and Kevin G. Hall | McClatchy Newspapers
last updated: November 24, 2009 07:57:12 AM

Small wonder others have a differing opinion. The money quote from none other then Treasury Sec. Tim Geithner while under oath at a Senate hearing last year:

During Geithner’s Senate testimony, he admitted that both Fannie and Freddie played a central role in the financial crisis, telling Sen. David Vitter (R-La.) that the two government-sponsored enterprises (GSE) were a “core part” of the country’s financial woes.

“Absolutely,” Geithner said. “Fannie and Freddie were a core part of what went wrong in our system.”

The entire article can be read at http://www.cnsnews.com/public/content/article.aspx?RsrcID=49791

Great Post !

I am so tired of people just parroting whatever they hear 'the talking heads' say during prime time. So the government wanted more Americans to buy homes?

That doesn't mean you no longer check and verify credit worthiness does it? Did the government make the 'interest-only' home loan? No - it is was the banks and other industries that came up with all these fancy ways to essentially sell something for nothing. They then packaged all the loans together and sold them to any and everyone across the world ( not just Freddie and Fannie ).

Loan buyers all either assumed the loans were good or re-sold them ASAP.

What a mess! You and I deal with the exact same thing on a micro-level anytime we buy a car. The salesrep always has a great way to get you into the car you want but can't afford. Perhaps we should blame the government for anyone feeling financial pain caused by the cash-for-clunkers program.

Terrific post, Pat.

Republicans like to blame Dodd and Franks but forget who was in charge of Congress from 1995 through 2006--Dodd and Franks were MINIORITY members of the finance committees. Barnie Franks has said that he tried to get republicans on board to fix the Fannie and Freddie problem but, just like fixing problems today, they said NO.

What TRIGGERED the crisis and what was effected by the crisis are two different things, Joe. Learn to listen, listen to learn. Did anyone go out and destroy all the houses on which these sub-prime mortgages were issued? Let's not blame the victims, let's examine how they and we were made the victims of this scam the MSM calls the "housing crisis".

So because Pat read it in an article it must be true? If there was no Fannie and Freddie to back up the bad loans, they would never have been made in the first place.

But let's pretend everything that was said in the article Pat posted - and I cannot tell if that's all the article or Pat's commentarty, the simple fact is Fannie and Freddie are losing enormous amounts of money every day. If it is so very important to take the FINREG, why omit Fannie and Freddie?

Pat, are you saying they are fine and do not need fixing? Sorry, is that what Goldstien and Hall are saying? And what is their background. I sure hope fro credability purposes they are more than reporters.

Joanna - Thanks for the link, the article made for interesting reading. One thing I like to do is find out about the site after reading the article. CNS makes no secret that they are providing what they call 'balance' to what they perceive as other media bias. And we have all come to know that the new definition of 'balance' is 'bias in another direction.' Be that as it may, it is offered only as a caution to read with skepticism. For instance, the phrase "were a core part" undoubtedly has context that is conveniently omitted. It would be helpful to read the whole paragraph that surrounded that statement to see if it expanded the apparent meaning. The article also makes the claim that Fannie/Freddie at one time controlled almost half of the sub-prime mortgage market. Now if I hadn't read the article that Pat posted I wouldn't have known that the high point was in 2004, and that by the time the sub prime mortgage fueled debacle started to really kick in Fannie/Freddie's share was closer to a quarter. So, this article seems very selective in actual information used and clearly slanted to support a point of view

Ron - Atlanta

Joanna - Thanks for the link, the article made for interesting reading. One thing I like to do is find out about the site after reading the article. CNS makes no secret that they are providing what they call 'balance' to what they perceive as other media bias. And we have all come to know that the new definition of 'balance' is 'bias in another direction.' Be that as it may, it is offered only as a caution to read with skepticism. For instance, the phrase "were a core part" undoubtedly has context that is conveniently omitted. It would be helpful to read the whole paragraph that surrounded that statement to see if it expanded the apparent meaning. The article also makes the claim that Fannie/Freddie at one time controlled almost half of the sub-prime mortgage market. Now if I hadn't read the article that Pat posted I wouldn't have known that the high point was in 2004, and that by the time the sub prime mortgage fueled debacle started to really kick in Fannie/Freddie's share was closer to a quarter. So, this article seems very selective in actual information used and clearly slanted to support a point of view

I suggest you do your own research using multiple sources. I just quoted one that pertained to issue being discussed. Fannie and Freddie, in my opinion, were central to collapse of the housing industry that lead to the recession. Any so-called "Comprehensive reform" that is being discussed in Washington DC that does not include Fannie and Freddie is not comprehensive and does nothing to address the core issues to the problem.

Pat, Boston, MA

Bravo Madam, Bravo!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Yeah, my questions were mainly rhetorical. I have researched this from multiple sources and it is clear to me that Fannie/Freddie, while not without some issues, are mainly convenient scapegoats for those whose knee jerk reaction is 'government always bad, private business always good." Once the unregulated lenders discovered that there was money to be made in sub-prime mortgages they created or found lots of places to write them and sell them, lots of ways to bundle the risk and make even more money.

My experience in business and with business is that if there is a regulation you find onerous or a requirement that is obstructive you do the minimum necessary to operate within the regulation or to meet the requirements. If the regulatory environment regarding sub-prime loans would have been so bad for these institutions or if their profits would have been adversely effected, there would have been a whole lot less of it going on. They may have discovered that they could make some money by selling loans to Fanny and Freddie, but once they caught on to the concept there was no stopping them from expanding on it until their roofs started caving in.

Ron - Atlanta

Yeah, my questions were mainly rhetorical. I have researched this from multiple sources and it is clear to me that Fannie/Freddie, while not without some issues, are mainly convenient scapegoats for those whose knee jerk reaction is 'government always bad, private business always good."

I don't think anyone is saying that, there are multiple reasons the banks, Fannie&Freddie, and the rating agencies like Morningstar caused the housing market to collapse. But to say that Fannie and Freddie were immune from this responsibility is absurd. They were central to the problem. The job of Fannie and Freddie was to create a secondary mortgage market by purchasing the mortgages from the bank lenders. This freed up capital for the lenders to make even more loans. Fannie and Freddie purchased these poorly backed loans, they should have known better. It was Fannie and Freddie's job to know what they were purchasing, but yet they let it slide. Now Fannie and Freddie are exempt from this so-called "Reform" being proposed in Congress. Without acknowledging that Fannie and Freddie played a central role in the system tanking, this is really no reform at all.

Pat in Boston is RIGHT, Joe in Albany.

You sound like a Wall Street lapdog. What has Wall Street done for you lately? You must have some connection. You certainly can't be Main Street.

Don't you get sick of always blaming the underdog for everything?

All of the people saying Fannie and Freddie were not part of the problem, also don't seem to have ANY explanation of why they need a taxpayer BAILOUT of between $400 billion and $1 trillion.

FAR MORE than any evil Wall Street bank or AIG.

Sorry, folks, I'm one of those people that believes where there's smoke there's fire.

Perhaps they are undercapitalized because their portfolios all lost value when the entire market imploded, just like World Trade Center 7.

You can be current on your mortgage and still watch its value drop when all around you are underwater or in default. The value of the debt paper Fannie and Freddie were holding should be no different.

Say Jody:

Can you imgaine trying to lead a classroom of 100 kids and anytime the class has to make a decision whether it has to do with lunch, recess, grading on a curve, whether 90 is equal to an A, what chapters to read next week, etc., that you first had to check with Lydia, Susan, Joe, Ben and now it seems Scott before you could decide anything.

Now it may not be too bad if 4 or 5 kids out of that 100 took their turns and they all had the opportunity to have the final say as to how a class room policy (Bill) would be fashioned and whether or not it passed, but the fact that it is the same 4 or 5 kids (Lyida, Susan, Joe, Ben and now Scott) who make those deicisions, and therefore control the class room environment and agenda, has to be pretty darn frustrating to the teacher and the other students.

Almost forgot: Serve as a side dish to field-dressed moose; Garnish with hair of timberwolves shot from helicopter.

And so they are named the : RE-peat-the-lie-to-the-PUBLIC-ans