Shelby: Fannie Mae, Freddie Mac Should Be Included In Financial Reform

WASHINGTON — A Democratic plan to rein in the financial industry is flawed because it fails to tighten control over two large government-sponsored mortgage companies blamed for creating a demand for risky loans and inflating the housing bubble, a leading GOP senator on banking issues says.

The legislation "touches nearly every corner of the economy," Alabama Sen. Richard Shelby said in the GOP weekly radio and Internet address. "But these major contributors to the crisis are left unscathed," he added, singling out Fannie Mae and Freddie Mac.

"For years, Democrats blocked meaningful reform of Fannie and Freddie, and not much has changed," Shelby said.

The broadest changes in banking rules since the Great Depression are aimed to prevent a repeat of the near-meltdown that buckled Wall Street in 2008.

The Senate bill would create a council of regulators to oversee risks in the financial system and set up a mechanism to liquidate companies that are too large and interconnected to go through bankruptcy. It also would create an independent consumer protection bureau to police lending and bring previously unregulated complex securities under government oversight.

The Senate is debating the bill. The House passed similar legislation in December.

Obama administration officials have said that while the housing market remains unstable, it is too early to undertake wholesale changes in the housing finance system.

Fannie Mae and Freddie Mac buy mortgages from lenders and package them into bonds that are resold to global investors. When the housing bubble burst, the government had to step in and take them over.

Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, and fellow Republican Sens. John McCain of Arizona and Judd Gregg of New Hampshire have proposed requiring the government to give up control of Fannie and Freddie within two years and then take steps to get out of the business of mortgage finance. This plan would also repeal the companies' mandates to promote affordable housing.

A vote on the amendment could come as early as Tuesday.

Shelby also criticized the bill's consumer protection provisions, saying they overreach and could affect businesses that are not primarily financial companies. He also said the bill's call for an independent consumer protection bureau within the Federal Reserve would pose risks because it would separate consumer protections from regulators who look out for the safety and soundness of banks.

An alternative consumer provision offered by Republicans last week failed, with two Republicans joining all Democrats in voting in down.

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On the Net:

GOP address: http://tinyurl.com/22rjeyf

Comments

[caswel]

07:19 AM on 05/12/2010

Recommendations: Urge congress to pass laws to
1. Decommission Fannie and Freddie ‘home mortgage’ function
2. Limit all entitlements to the amount paid for by taxes, Especially Medicare whose entitlements are only 50% paid for by taxes, the rest goes to debt.
3. reinstate the Glass Stengal legislation.

[caswel]

07:18 AM on 05/12/2010

As of March 31, 2010 US Treasury and Federal Reserve guarantees are already 12 Trillion for these subprime loans to prevent contagion to the banking system (o). Since the Federal Reserve and FDIC have already spend their reserves. It won’t have enough money to safeguard deposits, thereby causing hyperinflation, making their savings worthless. Overspending may, as it did for Argentina, change the US from a wealthy country to a third world country that can’t afford welfare or a functioning army.
(o) http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4&refer=patrick.net

[caswel]

07:18 AM on 05/12/2010

Exposure to subprime loans has made the banking system insolvent, unable to loan to their commercial customers, thereby preventing a recovery and increasing unemployment from 8% in 2008 to 10%. Many Democrats (Mel Watts on 8/25/08[k][1:11:57+]),(Michael Capuano[l] [1:19:00-1:21:10] and ) continue to demand that Fannie Mae continue to provide pork, preferential loans to the Poor, Blacks and Latinos. The problem is that data from 2009 suggest that 62% of Subprime Mortgages may default (m) [Moody’s, Feb 2009]. The more realistic question to a subprime candidates might be, “would you rather have a job or a mortgage you won’t be able to pay?”
(k) http://www.c-spanvideo.org/program/281353-101 [1:11:57-1:13:40]
(l) http://www.c-spanvideo.org/program/292675-1 [1:19:00-1:21:10]
(m) http://www.housingwire.com/2009/02/26/subprime-mortgage-defaults-to-surge-report/

[caswel]

07:18 AM on 05/12/2010

On September 9 2010, the Fannie and Freddie’s was guarantee loans to the poor reached 76% of all mortgages, they couldn’t find creditworthy borrowers; Fannie and Freddie’s regulator, James B Lockhart, was forced to put it in conservatorship due to the unsafe loans that they were guaranteeing and their losses. In his testimony to congress, James Lockhart commented that HUD’s goals for Fannie and Freddie’s were too aggressive and the cause of their unsafe loans that caused its bankruptcy (i). [16:12-17:50]
(i) http://www.c-spanvideo.org/program/281353-101 [16:12-17:50]

[caswel]

07:17 AM on 05/12/2010

What was the result of the Democrats tripling Fannie and Freddie’s part of the mortgage market? [1580% more than Greenspan recommended as safe in on April 6, 2005] Fannie and Freddie produced not only more toxic loans, but also a higher percentage of subprime defaults: “S&P now expects the default rate on subprime loans issued in 2005, 2006, and 2007 to be 11 percent, 30 percent, and 49 percent, respectively” the-Truth-About-Mortgages.com July 9, 2009(j)
(j) http://www.thetruthaboutmortgage.com/subprime-default-rate-as-high-as-49-percent/

[caswel]

07:15 AM on 05/12/2010

Schumer: ”August 16, 2007: if Bush regulators won't lift Fannie and Freddie mortgage portfolio caps, congress must act instead.” (1) "2007 Oct 11. Democrats Strengthened Measure Would Lift GSEs' Portfolio Caps By 10 Percent for Six Months—With 85% of Increase Devoted to Subprime Refinancing… “Democrats in Congress are coming together to take steps the administration won’t.” … “Schumer, Frank and other Democrats also proposed a substantial increase in federal aid to housing nonprofits [ACORN] that perform homeowner counseling for at-risk borrowers.”(2)
(1) http://schumer.senate.gov/new_website/record.cfm?id=280933&&year=2007&
(2) http://schumer.senate.gov/new_website/record.cfm?id=286460&&year=2007&

[caswel]

06:51 AM on 05/12/2010

After firing Greenspan for his whistle-blowing. Franks Dodd and Schumer forced the administration to increase the percent of the mortgage market that Fannie and Freddie controlled from 23% to 76%, create more toxic subprime loans (d), Fannie and Freddie’s executives were required to meet the goals set by HUD which added up to 156% of their assets in 2007 [HuduserTable 3](e).
(d) http://schumer.senate.gov/new_website/record.cfm?id=286460&&year=2007&
(e) http://www.huduser.org/portal/datasets/GSE/gse2007.pdf

[caswel]

06:47 AM on 05/12/2010

Franks Dodd and Schumer knew that Fed. Governor Poole had already reported the GSEs to be bankrupt by $1.8 trillion in January 2007 (f). Why is this a big deal? At that time, the Adjusted Gross Income(AGI) for every person in the US was $8 trillion. (g) (That is the AGI on line 32 on your 1040.) Despite Fannie, Freddie and the other GSEs owing more than everyone in the US earned, Congressional members of the house “Banking, Urban Affairs &Housing committee” wanted the administrators of Freddie and Fannie to make more loans. (h)
(f) http://research.stlouisfed.org/publications/review/07/05/Poole.pdf
(g) http://www.irs.gov/pub/irs-soi/08fallbulintax.pdf
(h) http://schumer.senate.gov/new_website/record.cfm?id=286460&&year=2007&

[caswel]

06:45 AM on 05/12/2010

Alan Greenspan reported that that 40% of the loans in Fannie’s and Freddie’s mortgage-backed securities made between 2002-2005 were subprime.(b). In April 2005, Greenspan told congress that expanding the percent of the mortgage market that they guarantee from 5 to 23% puts the entire banking system at risk. He asked them to reduce the percentage back to 5%(c) Strong banks are collateralized at 6% of their loans. They become insolvent if they have a many defaults.
(b) http://www.fool.com/investing/general/2010/03/23/alan-greenspan-on-the-financial-collapse.aspx
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2010_spring_bpea_papers/spring2010_greenspan.pdf
(c) http://www.federalreserve.gov/boarddocs/testimony/2005/20050406/default.htm

[caswel]

01:46 AM on 05/12/2010

Fannie & Freddie’s 1992 reauthorization law forced their executives to buy 100% of their guaranteed mortgages from the poor, very poor or minorities.(a) The 1999 repeal of Glass-Stengall allowed them to get the stock market to pay for welfare. Deception was the key to suggesting that Fannie and Freddie’s securities were of a high caliber (as it had been before 1992). We didn't know that Fannie and Freddie were selling subprime mortgages in their mortgage-backed securities. The GSEs were exempt from the 1933 and 1934 securities laws. In 2007, banks had to write off $400 billion in subprime mortgages, putting the banking system at risk for wholesale failure. Three weeks ago the Federal Reserve made $12 trillion of assurances to control the subprime mortgage debacle. To increase their fan base among voters (to win elections), Dems Schumer and Dodd increased Freddie and Fannie’s percentage of the mortgage until they went bankrupt. The GSEs mortgages portfolio increased me from 23% in 2005 to 76% in 2008. This pressured Fannie and Freddie employees to find more impoverished loans to guarantee. Increasing the number of applications by 1500% increased the job difficulty and lowers the selection ratio: The subprime default rate from 11% in 2005, to 29% in 2006 to 49% in 2007. The subprime default rate was 62% in February 2009.
(a) http://www.law.cornell.edu/uscode/search/display.html?terms=affordable&url=/uscode/html/uscode12/usc_sec_12_00004563----000-.html

[caswel]

12:58 AM on 05/12/2010

This depression was caused by Congress’ decision to increase Fannie & Freddie’s portfolio to (from 5% to 76% of the mortgage market) and pushed regulators to urge banks to make subprime loans to disprove discrimination. Yaron Brooks, Forbes July 18,2008 http://www.forbes.com/2008/07/18/fannie-freddie-regulation-oped-cx_yb_0718brook.html

[ron ray]

04:50 PM on 05/10/2010

fannie and freddie have already been seized by the feds, so they're in a different ballpark. shelby is just obfuscating.

or hey... maybe we can seize the other banks we bailed out, the way small banks get seized, and not just take the losses but split the profits?

[Factonfact]

03:38 PM on 05/10/2010

Separate legislation is being prepared to deal with Fanny and Freddie.

Loading it onto a Wall Street reform bill simply is a GOP effort to delay and eventually kill the bill.

IF YOU OPPOSE WALL STREET REFORM YOU ARE A REPUBLICAN.

[Billyguitar]

02:23 PM on 05/10/2010

Doesn't Shelby follow up every statement with "Where's the birth certificate?"?

[pasko]

02:49 PM on 05/10/2010

Don't liberals deflect every debate to "birther" and "racist"?

[plan-uts]

12:28 PM on 05/10/2010

F&F's mandate was not to promote affordable housing. Their mandate was to provide housing to those who could not afford it!!! They are into the taxpayer for 140B and just asked for another 8b and some change. If this is a housing bubble induced financial crisis there can be no reform without F&F or the mortgage system.