The Role of the GSEs and Federal Housing Policy in the Financial Crisis

If Fannie and Freddie had stopped lowering the mortgage loan qualification standards for loans they would buy, that might have sent a signal to mortgage originators that it was time for prudence. Fannie Mae and Freddie Mac have long had a 2.25 billion dollar interest free line-of-credit with the U.S. Federal Reserve. And, the debt markets and the rating agencies have long assumed the GSAs had an implicit federal government guarantee on their debt. This assumed implicit federal guarantee lowered the cost-of-funds the GSEs borrowed in the private debt market. The lower cost of borrowing funds, for the GSEs, made the GSEs a very powerful competitor and gave them a virtual monopoly. The GSEs cost of funds advantage put private mortgage packagers and private investment banking interests at a significant disadvantage to the GSEs. [See, Who Are Fannie Mae and Freddie Mac By Robert Longley, about.com - July 13, 2008 at: http://usgovinfo.about.com/b/2008/07/13/who-are-fannie-may-and-freddie-mac.htm Is FM Watch a Crusader With an Agenda? By Louis Sichelman RealtyTimes, pub. 7/5/1999 at: http://realtytimes.com/rtpages/19990705_fmwatch.htm New Alliance Confronts FM Watch, Champions Existing Housing Finance System By Broderick Perkins RealtyTimes, pub. 10/5/2000> http://realtytimes.com/rtpages/20001005_fmwatch.htm Fannie Mae Eases Credit to Aid Mortgage Lending By Steven A. Holmes - New York Times pub. September 30, 1999, at: http://www.nytimes.com/1999/09/30/business/fannie-mae-easescredit-to-aid-mortgage-lending.html Problems at Fannie Mae and Freddie Mac: Too Big To Fail? By United States Senate Republican Policy Committee, Jon Kyle [read the Executive Summary] September 9, 2003, at: http://faculty.chicagobooth.edu/erik.hurst/teaching/fannie_too_big_to_fail.pdf Government Sponsored Enterprises (GSEs): Why is Effective Government Supervision Hard to Achieve? Presented to the 37th Annual Conference on Bank Structure and Competition Federal Reserve Bank of Chicago - May 10, 2001, By Thomas H. Stanton Center for the Study of American Government, Johns Hopkins University at: http://www.thomas-stanton.com/pubs/gse/GSEWhy_is_Effective_Government_Supervision_Hard_to_Achieve.pdf The Reckoning: Pressured to Take More Risk Fannie Reached Tipping Point By Charles Duhigg NYT Oct 4, 2008, at: http://www.nytimes.com/2008/10/05/business/05fannie.html? pagewanted=all

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Fed Felt Hamstrung by 2005 Housing Bubble By Sudeep Reddy - Wall Street Journal, pub. 1/15/2011 at: http://online.wsj.com/article/SB10001424052748703959104576082313921593064.html? KEYWORDS=Fed+Felt+Hamstrung+by+2005+Housing+Bubble+Sudeep Bill Clintons Drive to Increase Homeownership Went Way to Far By Peter Coy Bloomberg BusinessWeek, February 27, 2008 - at: http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

Bill Clinton Discusses His Efforts to Increase the Use of the Community Reinvestment Act as an Economic Stimulus Tool in PBS NewsHour video which was aired in January of 1998 at: http://youtu.be/_8SEi6KFKTI
For Further information on housing policy changes during Bill Clintons presidency see, The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities By Howard Husock published in City Journal | Winter 2000 at: http://www.city-journal.org/html/10_1_the_trillion_dollar.html More on changes to federal housing policy and the Community Reinvestment Act during Bill Clintons presidency see, Redlining or Red Herring? By Jeffrey Gunther, Kelly Klemme and Kenneth J. Robinson in Southwest Economy a publication of the Federal Reserve Bank of Dallas pub. May June 1999 | at: http://www.dallasfed.org/research/swe/1999/swe9903b.pdf Do a key-words-search on: Andrew Cuomo Fannie Mae Do a key words search on: Janet Reno Threatens Banks The Reckoning: Building Flawed American Dreams by David Streitfeld Gretchen Morgenson NYT October 18, 2008, at: http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html NOTE: Henry Cisneros was the Director of the Department of Housing and Urban Development (HUD) during Bill Clintons first presidential administration. The Tragedy of Countrywide Financial and Angelo Mozilo By Gary Jacobson - muckety.com pub. June 26, 2008 at: http://news.muckety.com/2008/06/26/the-tragedy-of-countrywidefinancial-and-angelo-mozilo/3712 Notice that Henry Cisneros and Kathleen Brown [sister of then Attorney General of California, now Governor of California, Jerry Brown] both sat on the Board of Directors of Countrywide Financial until mere days before Countrywides collapse was final.

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The Nationally Recognized Statistical Rating Organizations (NRSROs) were created by an act of congress. Institutions which purchase and manage legal investments are required to use these organizations suitability ratings as a guide to acceptable fiduciary investments. Many have mentioned that, by giving a small number of rating agencies the imprimatur the Nationally Recognized Statistical Rating Organizations, these rating services were given oligopoly pricing power. Some have said that these organizations were not properly overseen by the SEC. http://en.wikipedia.org/wiki/Nationally_recognized_statistical_rating_organization and http://youtu.be/XiDYVFBqdWg During a Congressional hearing on Fannie Mae Director of OFHEO, Armando Falcon, Jr. and Congressman Christopher Shays comment how Fannie Mae and Freddie Mac conducted their business. http://youtu.be/ecwDAlUbcOw Peter J. Wallison questions Warren Buffett at a Financial Crisis Inquiry Commission Hearing see: http://youtu.be/UqOX2tAvRbU Watch a slice of Georgetown University Law Professor, Adam Levitins testimony before the House Financial Services Subcommittee at: http://youtu.be/ibgdgl0PoBw SEC Files Lawsuits, alleging fraud, against former Fannie Mae senior executives: http://online.wsj.com/public/resources/documents/SECcomplaintvsfannie12162011.pdf And, former Freddie Mac senior executives: http://online.wsj.com/public/resources/documents/SECcomplaintvsfreddie12162011.pdf The Financial Crisis on Trial By Peter J. Wallison - WSJ OPINION pub. December 21, 2011 at:
http://online.wsj.com/article_email/SB10001424052970204791104577108183677635076lMyQjAxMTAyMDAwNDEwNDQyWj.html?mod=wsj_share_email

A Mortgage Tornado Warning, Unheeded By Gretchen Morgenson New York Times, pub. 2/04/2012 at: http://www.nytimes.com/2012/02/05/business/mortgage-tornado-warningunheeded.html?_r=1&ref=gretchenmorgenson MERS Morass is Hanging Up Negotiations On Foreclosure Settlement: Does MERS Have the Legal Authority to Foreclose read from the subheading, Enter the X-Files, an excerpt from that section: To ensure widespread acceptance within the industry, MERS sought to have security instruments modified to contain MERS as the original mortgagee (MOM) language. MERS began to change decades of business practices after the two biggest mortgage funders in the U.S. the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) modified their Uniform Security Instruments to include MOM language. Their approval opened the doors to incorporate MERS into loans at origination. Soon after, U.S. government agencies like the Veterans Administration, Federal Housing Administration and Government National Mortgage Association (Ginnie Mae), and several state housing agencies followed both Fannie/Freddie to approve MERS.

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See complete article at: http://dailybail.com/home/video-congressional-testimony-on-mers-doesit-have-legal-aut.html The Community Reinvestment Acts Harmful Legacy: How it Hampers Access to Credit By Michelle Minton March 20, 2008, at: http://cei.org/node/20524 Community Reinvestment Act is Still Wreaking Havoc By Kent Robinson letter to the editor of the Wall Street Journal published December 29, 2011, at:
http://online.wsj.com/article/SB10001424052970204464404577117091015102330.html

Bill Clinton: Wanted for Crimes Against Our Economy By Jim Newman Posted on February 27, 2012, at: http://kayleighmcenany.com/2012/02/27/jim-newman-bill-clinton-wanted-for-crimes-againstour-economy/

25 People to Blame for the Financial Crisis: The good intentions, bad managers, and greed behind the meltdown. Time Magazine Specials - February 2009 at: http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877322,00.ht ml?artId=1877351?contType=article?chn=specials The Government Did It: Don't call the mortgage crisis the result of insufficient regulation. Our government was behind the wheel all along. By Yaron Brook - Forbes Magazine - July 18, 2008, at: http://www.forbes.com/2008/07/18/fannie-freddie-regulation-oped-cx_yb_0718brook.html?partner=email

The Collapse of Fannie Mae and Freddie Mac: Victims or Villains

By Dale Arthur Oesterle - J. Gilbert Reese Chair in Contract Law, The Ohio State University Moritz College of Law, at: http://moritzlaw.osu.edu/eblj/issues/volume5/number2/oesterle.pdf

Timeline: George W. Bush, John McCain, Bush Administration Treasury Secretary, John Snow and Federal Reserve Chairman Alan Greenspan in Congressional Testimony warn Congress about the GSEs a video clip from a news program at: http://youtu.be/cMnSp4qEXNM The Big Subprime Gamble By Godfrey Bloom published on YouTube, at: http://youtu.be/bmCgm-Fctj4 New Study Blames Community Reinvestment Act for Mortgage Defaults By Paul Sperry pub. Investors Business Daily - 12/20/2012, at: http://news.investors.com/ibdeditorials-perspective/122012-637924-faults-community-reinvestment-act-cra-mortgagedefaults.htm?p=full

Did The Community Reinvestment Act Lead to Risky Lending? Published by The National Bureau of Economic Research October 2012, at: http://www.nber.org/papers/w18609

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Why the Mortgage Crisis Happened (A Timeline) By M. Jay Wells pub. American Thinker - 10/26/2008, at:
http://www.americanthinker.com/2008/10/what_really_happened_in_the_mo.html

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