Rehberg blames housing crash on federal government

2012-07-04T22:00:00Z 2012-07-22T09:04:06Z Rehberg blames housing crash on federal governmentThe Associated Press The Associated Press
July 04, 2012 10:00 pm  • 

HELENA – One of U.S. Rep. Denny Rehberg’s talking points on the campaign trail has been to blame the housing crash on the federal government for making it too easy to get credit.

But the six-term Republican himself once backed legislation to help people get loans even if they didn’t have enough money for a down payment.

Rehberg has repeatedly referred to the problems with mortgage giants Fannie Mae and Freddie Mac as he challenges incumbent U.S. Sen. Jon Tester, a Democrat. Rehberg often criticizes U.S. government rules that he says forced lenders to take bad loans.

And at the first debate between with Tester, Rehberg went further and said bankers, builders and consumers were not the problem.

“They were sucked into something believing that the government told them, that they can get something for nothing, that they can buy a home for zero down and zero interest, that they can keep doing that,” Rehberg said.

But during the Bush administration, Rehberg supported congressional plans to make it easier for people to get homes with less money down.

One of those made its way into law. The American Dream Downpayment Initiative was signed by then-President George W. Bush in 2003. Bush hailed the $200 million bill as way to help low-income families and minorities get homes they otherwise would not be able to afford.

The program gave poor first-time homebuyers funds for down payments, closing costs and other costs in purchasing the home, according to the Department of Housing and Urban Development.

The Rehberg campaign said that initiative differs from the congressman’s criticism of Fannie and Freddie. The congressman says the legislation he supported is different than the mortgage giants’ issues because the down payment plan had safeguards to ensure lenders could reject bad loans, properly helped families buy a home and that the program would end if it failed.

He argues that Freddie Mac and Fannie Mae, by contrast, wrongly forced lenders to make risky loans.

Rehberg spokesman Chris Bond pointed out that Tester supported a 2008 bailout of Fannie and Freddie, even though the Democrat has touted an opposition to government bailouts.

“Denny believes helping folks achieve home ownership is a worthwhile, important goal. But unlike Sen. Tester, he doesn’t believe that when lenders like Fannie and Freddie make mistakes, taxpayers should have to bail them out,” Bond said.

The Tester campaign does not consider the Bush administration-era rescue of Fannie Mae and Freddie Mac a bailout since they had government backing prior to the intervention. And Tester has argued government backing of mortgage loans is needed to ensure the survival of the 30-year loan that allows the housing market to continue.

The Tester campaign said Rehberg’s past support of down payment assistance demonstrates the Republican is flip-flopping on the role government should play in helping with mortgages.

“Congressman Rehberg was the government problem that led to the housing crisis,” said Tester spokesman Aaron Murphy.

The Tester-Rehberg matchup is one of the hottest U.S. Senate races in the country, with both sides expecting a tight finish to the end. Both are receiving millions of dollars in outside help as the parties vie for control of the U.S. Senate.

And both sides are making hay by pointing out apparent position switches.

The Rehberg campaign has hammered Tester for being a top recipient of lobbyist and Wall Street campaign donations after running in 2006 on a platform to clean up Washington, D.C., and for taking some outside spending while criticizing other sources of outside campaign money.

The Tester campaign has pointed out that Rehberg first supported the Patriot Act and Real ID before he then opposed them when it became clear the measures were unpopular in Montana.

Adding fuel to the fire, Rehberg appeared to again embrace the Patriot Act in a radio interview earlier this week when he said it was not a mistake and was necessary at the time. Rehberg, however, explained that he simply believes that some of the measure’s tools for law enforcement are no longer necessary.

Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

(26) Comments

  1. BR
    Report Abuse
    BR - July 08, 2012 8:48 am
    Mr. Rehberg apparently does not read contemporary news about fraud at Barclay's and large US banks causing the mortgage crisis, and the author of this article wrongly assumes that because Rehberg voted for something he was for it. Rehberg voted for everything his party served up; he didn't consider it. It was dinner.
  2. skater grandpa
    Report Abuse
    skater grandpa - July 06, 2012 1:34 am
    All this aside, did Rehberg sign the Grover Norquist no new tax pledge he wrote when he was like 14? Not even closing a loophole? Just wondering. Not that it would change many votes.
  3. --gw--
    Report Abuse
    --gw-- - July 05, 2012 10:20 pm
    "This AP article completely diverts attention from the real subject to focus on Romney. Typical of the AP."

    OK, show me just where this AP article even mentions Romney. I just searched from the top on down, and your comment is the first mention of Romney.

    Speaking of "typical" and "diversion" - go look in the mirror!
  4. --gw--
    Report Abuse
    --gw-- - July 05, 2012 10:18 pm
    From the beginning of your last paragraph, "The chart below shows the dramatic rise...." I must ask you just where is this chart?

    Oh, here it is!
    http://tjhancock.wordpress.com/housing-bubble-financial-crisis-detailed-comprehensive-assessment/
  5. --gw--
    Report Abuse
    --gw-- - July 05, 2012 10:14 pm
    AG - At least you can write one sentence of your own at the end. The spelling and grammar errors let me know it's yours.

    http://tjhancock.wordpress.com/housing-bubble-financial-crisis-detailed-comprehensive-assessment/

    So what's your favorite copy & paste method? Are you right-click & select copy/paste? Ctrl-C then Ctrl-V? What's your secret? Part of it is that you don't copy *all* of someone else's work. Scroll on down to 2nd paragraph under "It really began in the mid-1990s" to find the beginning of this crappy copypasta.

    If you are TJ Hancock then make a new post. Otherwise, try doing your own work....
  6. Still Here
    Report Abuse
    Still Here - July 05, 2012 1:38 pm
    Some good points, Think of this, Who does Congress answer to???? Answer, Banks, Wall Street, Big Business, the Lobby, Real estate Lobby, Big Money, Etc. Another Question, Who made the Money, Who profited???? Same Group Good guess.
    Get the Big Money out of government. It isn't Repub or Demo, not Lib or Con. It'f for out country. As for Denny "Silver Spoon" , We will tell you what you want to hear, when you want to hear it, All Hat, no Cattle
  7. Plainsman
    Report Abuse
    Plainsman - July 05, 2012 12:20 pm
    Boss41 and Boneshackler have pretty much nailed the issues here. While the government lending programs played a small part in the problem, the bankers and financiers, in pursuit of big profits through sale of derivatives and marketing of mortgages they themselves knew were unsound (see Goldman Sachs) were by far the biggest villains in this fiasco. That is simply a fact, accepted by the vast majority of economists. The vast majority of these loans were made to middle and upper middle class borrowers, not poor people. With that class of loans, there was no government mandate to loan and when was the last time you were able to force a banker to make you a loan they didn't have to? Greed led everybody into the 'go-go' mentality.

    Leave it to the Republicans to place all blame on the evil federal government and none on the hallowed 'job creators' of Wall Street. Only in the alternate Republican world of 'the facts are whatever I say they are' does Rehberg's ridiculous claim have any merit.
  8. montanamuralist
    Report Abuse
    montanamuralist - July 05, 2012 11:20 am
    Never ceases to amaze me Rehberg continues to blame everyone but himself. To hear him tell it he is perfect. Yeah good idea Denny, hammer Tester for doing the responsible thing and not letting the housing market collapse....a product of Republican non regulatory philosophy by the way. You comment like everyone wants something for nothing you loser. Shows how out of touch you are with most real hard working people. We do not expect to have an unfair playing field...crafted by you and your big corporate supporters. Idiot!!!~
  9. Boss41
    Report Abuse
    Boss41 - July 05, 2012 10:56 am
    Donald and AG still fail to explain how the crooks on Wall Street were forced to defraud thousands of investors. It seems to any rational thinking person that Wall Street committed these crimes, not because they were forced by government, but because it made them very wealthy. You guys are talking out of both sides of your mouth by complaining that a democratic congress would not allow W to regulate but then supporting a candidate who wants no regulations. With each passing day, it becomes more and more obvious how severely misinformed and intellectually lazy Fox News watchers really are.
  10. D
    Report Abuse
    D - July 05, 2012 10:05 am
    No. Congressmen, who like to spout that they are "for the people, etc." simply do NOT personally and frivolously sue "the people" at the people's expense. It was a FRIVOLOUS lawsuit...one without merit (a "sham" in your words)--which is why Rehberg dropped it. This is the same Rehberg who has touted "pesonal responsibility" and "tort reform." Rehberg simply did it to himself.
  11. DonaldM
    Report Abuse
    DonaldM - July 05, 2012 8:59 am
    Very good history of the subject, AG. One later development. Shortly after the Democrats took control of Congress during the final 2 yrs of the Bush Admin., Bush attempted to issue Regulations to get some control over Freddie and Fannie. This effort was stopped in its tracks by Barney Frank in the House, and Chris Dodd in the Senate.

    They REFUSED to allow the President to exercise any control over the actions of these corrupt agencies. Harold Raines was Director at the time Obama was running for President. Raines changed the criteria for his bonuses from being based upon net earnings to gross activity; opened the floodgates to this continuing debacle and walked away with $90 million in his pockets to become a financial adviser to the Obama campaign.

    This AP article completely diverts attention from the real subject to focus on Romney. Typical of the AP.
  12. Scoop
    Report Abuse
    Scoop - July 05, 2012 12:35 am
    Rehberg is spot on.
  13. The_Boneshackler
    Report Abuse
    The_Boneshackler - July 04, 2012 5:59 pm
    If the housing collapse was caused by Congress holding a gun to the bank's heads and forcing them to lend to the unqualified, then why was the housing collapse global?

    The sad reality is that the banking cartels own the Federal Government. Wall Street committed massive mortgage lending fraud, securities fraud, title fraud, and foreclosure fraud. The foreign headlines have been outraged by the massive LIBOR interest rate rigging scandal involving all of the major TBTF banks that has recently come to light, while American newspapers are breathlessly 'reporting' on Tom Cruise and his soon to be ex-wife. Congress refuses to investigate the largest looting of public monies in world history. Instead, the banks 'agreed' to a tepid 'settlement' that will cost them practically nothing while absolving them of looting $Trillions from the economy while destroying the system of private property rights that existed in America for over 350 years.

    The Oligarchs are now coming for the states, and using classic divide-and-conquer strategies, will return the world to the days of the Robber Barons.

    Keep in mind that our overlords now have their own private mercenary armies at their disposal. The New World Order is here, and life is about to become more oppressive than most Americans can imagine.
  14. Boss41
    Report Abuse
    Boss41 - July 04, 2012 5:00 pm
    I do not remember big, bad Barney Frank holding a gun to anyone's head forcing them to swindle people into buying toxic, subprime mortgages. Wall Street found an opening, and they used it to exploit and defraud thousands of people, destroying the retirements and home values of thousands of people and taking down the economy. If Rehberg is so concerned that the government is at fault, why did he vote against stronger regulations? Dodd Frank had more holes than swiss cheese by the time these guys were done. If government is responsible for anything, it is poor regulation. Stop the revolving door between government and Wall Street and charge a very small tax on transactions, and it will go a long way to reigning these guys in. Only a few democrats are willing to do what it takes to reign them in - so far zero republicans.
  15. Alan Johnson
    Report Abuse
    Alan Johnson - July 04, 2012 4:17 pm
    The story is from the Associated Press, not the Missoulian.
  16. dsrobins
    Report Abuse
    dsrobins - July 04, 2012 1:18 pm
    Denny sure does love to make excuses for the corrupt banks and mortgage companies that really caused the housing crash. He is just a fool.
  17. sportscaster
    Report Abuse
    sportscaster - July 04, 2012 12:38 pm
    You'll see more of this as Election Day gets closer as the media tries to boost their buddy, Sen. Tester. Count on it. It doesn't matter if it's true or not, they'll do what they can do hurt Republican candidates. And by the way, are congressmen not supposed to sue entities like the fire department if they screwed up, just because they're congressmen? Oh, and you'll also see liberals continue their Bush bashing in an effort to take attention away from their guy Obama, still the biggest political sham foisted on the American public ever.
  18. NewMontanaMan
    Report Abuse
    NewMontanaMan - July 04, 2012 11:18 am
    Congressman Rehberg is exactly correct and the first politician I have seen finally admit the truth. There is a reason why no one on Wall Street or any Banker has been charged with any wrong-doing for the Housing and Financial collapse. The reason is that Congress itself caused it and specifically Democrats that wanted so badly to socially engineer home ownership that they forced banks to comply with their ridiculous dream that poor people could repay mortgage loans. Everything that followed happened at the direction of Democrats in Congress and George Bush was called a racist by Maxine Waters for wanting Fannie and Freddy investigated in 2001 when it was clear that Franklin Raines was dummying up the books there. Congress was the problem led by the Congressional Black Caucus, Hillary Clinton, Chuck Schumer, Chris Dodd, Barney Frank and the most idiotic of all, Maxine Waters with the help of Barack Hussein Obama as the adviser for ACORN and later as state senator and U.S. Senator.
  19. D
    Report Abuse
    D - July 04, 2012 10:57 am
    Sure it is...and Rehberg counts on people not remembering anything else. Especially the part where he personally and frivolously SUED the Billings Fire Dept., at the taxpayers' expense.
  20. DoItRight
    Report Abuse
    DoItRight - July 04, 2012 9:54 am
    It's the federal government all right. The BUSH government.

    Lets not forget that the Bush Wars drove up the price of gas so high that millions of people living in the suburbs could no longer afford to commute the long distances to work. They were no longer able to make house payments and all at once millions went into default. The domino effect caused millions more to loose jobs and their houses.

    Convenient to forget, but the truth is that this is the result of a Repubican game.
  21. Bones
    Report Abuse
    Bones - July 04, 2012 9:50 am
    The phrase "out of touch" is overused in politics, but I can't think of a more appropriate description for this.
  22. Tim Huffman
    Report Abuse
    Tim Huffman - July 04, 2012 9:40 am
    Gross oversimplification. Probably something he heard on the radio.
  23. ambiguous genitalia
    Report Abuse
    ambiguous genitalia - July 04, 2012 9:22 am
    In 1995, the Clinton Administration changed the law governing GSEs’ mission — the Community Reinvestment Act (CRA) — to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks’ lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank’s lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods — which involved reducing mortgage loan standards — or face backlash from those organizations’ private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions.

    Through Fannie Mae, the government controlled banks’ mortgage lending activity rates. As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae. Banks could even buy the mortgages back from Fannie Mae, with Fannie’s payment guarantee, thereby eliminating the credit risk (as long as Fannie was government backed). Now, if the US federal government is behind Fannie – and the government has a perfect credit record – there is really little worry for banks, so they might as well make all the mortgages Fannie Mae is willing to buy, and purchase all the guaranteed debt Fannie puts up for sale. However, to the extent investors ever believed Fannie was just like any other company — without the US government guaranteeing its debts, at least in bulk — well that would be a different story. The risks involved would go from theoretically near zero, to well, who knows… Throughout the Congressional debate on GSE regulations in 2003-2005, senior Congressional Democrats repeatedly inferred — even directly stated on at least one public occasion — the US federal government would bail Fannie Mae out if required.

    In written law, the US government only 100% guarantees Ginnie Mae. The other major two GSEs, Fannie Mae and Freddie Mac, exist in more of a grey area. Nothing explicitly states the federal government is 100% behind them, but it has always been implied. That is why statements of top government officials in the run up to the bubble are so very important, as are actions like the US President personally appointing Fannie’s CEO and directors.

    From 1993-1999, the Clinton Administration replaced many of Fannie Mae’s key executives, including the CEO, the CEO’s number two, and nearly half the board of directiors. As a government sponsored enterprise (GSE), the President had the authority to make those appointments. The board, which increasingly consisted of Presidential appointments, then worked with the new CEO to change Fannie Mae executives’ salary structures in order to incentivize them to reach higher mortgage targets. More specifically, the board promised senior executive millions in bonuses each year as long as Fannie reported certain earnings figures. Just a quick reminder… Fannie’s ability to reach earnings targets is directly related to the number of mortgages it buys, as long as those mortgages do not default or as long as Fannie executives do not recognize negative changes in the payment flow.

    Between 1994 and 2004, Fannie executives improperly reported $10.6 billion of earnings. Franklin Raines, the Clinton-appointed CEO, received over $90 million. Jamie Gorelick — a top Clinton Administration lawyer whom he appointed in 1997 to be Fannie Mae vice chairman despite having no formal financial experience – received over $26 million. Just by way of reference, in 2002, 21 senior Fannie Mae executives received over $1 million each.

    Just before Mr. Clinton curiously appointed Jamie Gorelick to the lucrative Fannie Mae post in 1997, she had authored a very significant and controversial legal document that came into sharp focus on 9-11. Her policy, which became known as the “Gorelick Wall” established barriers that prevented federal anti-terrorist criminal investigators from accessing various federal records and databases…one of the top causes for the 9-11 intelligence failure. And Jamie Gorelick’s curious appointments did not stop with Fannie Mae… Democrats selected her to serve on the 9-11 Commission; the official government investigation into what happened from an intelligence standpoint, and why. She was in the perfect spot to head off the “Gorelick Wall” from being a cause celeb in the 9-11 Commission’s final report.

    The only way to change the structure put in place in before 2000 would have been to forcibly replace the board of directors and senior management…but for that, the President would need hard evidence that justified cause. As far as Washington insiders publicly knew, all Fannie Mae was doing was helping poor people buy homes and, in the process, boosting economic activity. Who could argue with that? Certainly not any nationally-elected politician.



    That evidence finally came in 2004, despite fierce Democrat party efforts to prevent it and their systematic attacks on people who tried to bring it to light. Even after the evidence was in clear public view, Democrats continued to resist any changes to the regulatory structure that would have slowed GSEs mortgage lending activity.

    Franklin Raines moves Fannie into Subprime


    The Clinton Administration’s 1995 CRA changes authorized GSE’s to buy subprime mortgages, which it began to do in 1997. “Subprime” means that the person receiving the loan has a poor credit record and/or very low income compared to the loan size.

    Almost immediately, Fannie began to loosen its standards, requiring people to show lower wealth amounts in order to qualify for mortgages. By 1997, Fannie Mae was offering to buy 97% loan-to-value (LTV) mortgages. If a mortgage is $300,000 on a house worth $500,000, the LTV is 60% (3/5). The higher the mortgage relative to the house value, the higher the LTV. In other words, in 1997, Fannie started offering to buy mortgages that required recipients to put barely any money down. Fannie’s subprime backing caused the percentage of all new US mortgages that were of subprime quality to rise to 13% by 1999, versus 5% in 1994 when the Clinton Administration changed the CRA. According to a 2002 Housing Department report, “From 1993 to 1998, the number of subprime refinance increased tenfold.”

    As Fannie’s CEO, Franklin Raines explained in 1999, “Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements. Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

    A September 1999 New York Times article describing the situation stated, “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 in profits.” That stockholder pressure was primarily through the board of directors, much of which was Clinton appointed, and specifically due to the earnings-based compensation program the directors structured.

    The chart below shows the dramatic rise in home ownership rates during Mr. Raines’ tenure, from 1995 to December 2004, after roughly 25 years at roughly constant levels. This chart is what the Democrat party fell in love with, and represented what Congressional Democrats so fiercely defended in committee hearings about regulating Fannie. The vast majority of the rise happened before George W. Bush became President
  24. Got concrete
    Report Abuse
    Got concrete - July 04, 2012 8:51 am
    Looks like we can expect more of the same from the Missoulian during this election cycle. Why bother investigating what might have generated the candidates allegations like you would with a democrat. No, just best to hack the candidate. Thanks for the "news".
  25. ambiguous genitalia
    Report Abuse
    ambiguous genitalia - July 04, 2012 8:41 am
    In 1995, the Clinton Administration changed the law governing GSEs’ mission — the Community Reinvestment Act (CRA) — to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks’ lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank’s lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods — which involved reducing mortgage loan standards — or face backlash from those organizations’ private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions.

    Through Fannie Mae, the government controlled banks’ mortgage lending activity rates. As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae. Banks could even buy the mortgages back from Fannie Mae, with Fannie’s payment guarantee, thereby eliminating the credit risk (as long as Fannie was government backed). Now, if the US federal government is behind Fannie – and the government has a perfect credit record – there is really little worry for banks, so they might as well make all the mortgages Fannie Mae is willing to buy, and purchase all the guaranteed debt Fannie puts up for sale. However, to the extent investors ever believed Fannie was just like any other company — without the US government guaranteeing its debts, at least in bulk — well that would be a different story. The risks involved would go from theoretically near zero, to well, who knows… Throughout the Congressional debate on GSE regulations in 2003-2005, senior Congressional Democrats repeatedly inferred — even directly stated on at least one public occasion — the US federal government would bail Fannie Mae out if required.

    In written law, the US government only 100% guarantees Ginnie Mae. The other major two GSEs, Fannie Mae and Freddie Mac, exist in more of a grey area. Nothing explicitly states the federal government is 100% behind them, but it has always been implied. That is why statements of top government officials in the run up to the bubble are so very important, as are actions like the US President personally appointing Fannie’s CEO and directors.

    From 1993-1999, the Clinton Administration replaced many of Fannie Mae’s key executives, including the CEO, the CEO’s number two, and nearly half the board of directiors. As a government sponsored enterprise (GSE), the President had the authority to make those appointments. The board, which increasingly consisted of Presidential appointments, then worked with the new CEO to change Fannie Mae executives’ salary structures in order to incentivize them to reach higher mortgage targets. More specifically, the board promised senior executive millions in bonuses each year as long as Fannie reported certain earnings figures. Just a quick reminder… Fannie’s ability to reach earnings targets is directly related to the number of mortgages it buys, as long as those mortgages do not default or as long as Fannie executives do not recognize negative changes in the payment flow.

    Between 1994 and 2004, Fannie executives improperly reported $10.6 billion of earnings. Franklin Raines, the Clinton-appointed CEO, received over $90 million. Jamie Gorelick — a top Clinton Administration lawyer whom he appointed in 1997 to be Fannie Mae vice chairman despite having no formal financial experience – received over $26 million. Just by way of reference, in 2002, 21 senior Fannie Mae executives received over $1 million each.

    Just before Mr. Clinton curiously appointed Jamie Gorelick to the lucrative Fannie Mae post in 1997, she had authored a very significant and controversial legal document that came into sharp focus on 9-11. Her policy, which became known as the “Gorelick Wall” established barriers that prevented federal anti-terrorist criminal investigators from accessing various federal records and databases…one of the top causes for the 9-11 intelligence failure. And Jamie Gorelick’s curious appointments did not stop with Fannie Mae… Democrats selected her to serve on the 9-11 Commission; the official government investigation into what happened from an intelligence standpoint, and why. She was in the perfect spot to head off the “Gorelick Wall” from being a cause celeb in the 9-11 Commission’s final report.

    The only way to change the structure put in place in before 2000 would have been to forcibly replace the board of directors and senior management…but for that, the President would need hard evidence that justified cause. As far as Washington insiders publicly knew, all Fannie Mae was doing was helping poor people buy homes and, in the process, boosting economic activity. Who could argue with that? Certainly not any nationally-elected politician.



    That evidence finally came in 2004, despite fierce Democrat party efforts to prevent it and their systematic attacks on people who tried to bring it to light. Even after the evidence was in clear public view, Democrats continued to resist any changes to the regulatory structure that would have slowed GSEs mortgage lending activity.

    Franklin Raines moves Fannie into Subprime


    The Clinton Administration’s 1995 CRA changes authorized GSE’s to buy subprime mortgages, which it began to do in 1997. “Subprime” means that the person receiving the loan has a poor credit record and/or very low income compared to the loan size.

    Almost immediately, Fannie began to loosen its standards, requiring people to show lower wealth amounts in order to qualify for mortgages. By 1997, Fannie Mae was offering to buy 97% loan-to-value (LTV) mortgages. If a mortgage is $300,000 on a house worth $500,000, the LTV is 60% (3/5). The higher the mortgage relative to the house value, the higher the LTV. In other words, in 1997, Fannie started offering to buy mortgages that required recipients to put barely any money down. Fannie’s subprime backing caused the percentage of all new US mortgages that were of subprime quality to rise to 13% by 1999, versus 5% in 1994 when the Clinton Administration changed the CRA. According to a 2002 Housing Department report, “From 1993 to 1998, the number of subprime refinance increased tenfold.”

    As Fannie’s CEO, Franklin Raines explained in 1999, “Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements. Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

    A September 1999 New York Times article describing the situation stated, “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 in profits.” That stockholder pressure was primarily through the board of directors, much of which was Clinton appointed, and specifically due to the earnings-based compensation program the directors structured.

    All this happened well before Geoge Bush was ever consider for president

  26. BWO
    Report Abuse
    BWO - July 04, 2012 8:22 am
    Yes, no sense blaming the financial services industry that sold the derivatives and bad mortgages...
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