There must be a Republican playbook circulating widely with a chapter entitled, "What to say if asked who's to blame for the foreclosure mess." Because an awful lot of Republican candidates are all suddenly yelling "Fannie Mae, Fannie Mae, Fannie Mae" whenever plunging home prices and the housing crisis comes up. John McCain runs ads trying to tie Obama to Fannie Mae, John Sununu points to his legislative agenda on these GSEs a central campaign theme in New Hampshire, and the RNC website plays up every Fannie Mae political contribution it can find (to Democrats only, of course.)
Today, almost 1 out of 10 Americans with a mortgage loan is in serious financial trouble, anywhere from a few payments behind to standing on the brink of foreclosure. And this is after several million families have already lost their homes.
So their plan seems to be to chant Fannie Mae often and loudly enough, and hope the public will get confused about who really caused this huge national calamity. It is always a good political story to just blame a bad guy who has something to do with the same topic. After all, invoking "Iraq" every time this administration talked about who attacked us on 9/11 worked pretty well for a while.
The problem is, blaming Fannie Mae/Freddie Mac for the millions of foreclosures and trillions in lost home value is just plain wrong, and in fact has the story pretty much backwards.
How did we get here? It is a complicated story, but a quick summary goes like this: When the Bush administration took office in 2001, most home borrowers got conventional ("prime") loans or they could not buy. Subprime lending was still a relatively small part of the total mortgage market. But a combination of a hands-off regulatory approach to the mortgage industry, a low interest-rate environment maintained by the Greenspan Federal Reserve, a president cheering on an "ownership society", and Wall Street firms rushing in to pool together prime and subprime loans and challenge the dominance of the existing Fannie Mae and Freddie Mac home mortgage securitization system, set the stage for an explosion of higher risk lending.
Mortgage companies capitalized on pent up housing demand among many moderate income and minority borrowers. The subprime lending market soared, becoming nearly half of all new mortgage loans by 2006, and fueling huge bonuses among Wall Street investment firms like Bear Stearns.
But as has become apparent, these subprime loans were almost designed to go into default in massive numbers. Interest rates on adjustable mortgages spiked as low teaser rates rolled over and borrowers could not refinance their way out of trouble. Foreclosures started to come in waves in late 2006 and early 2007, so widespread and prevalent that the housing appreciation bubble burst, prices dropped sharply in dozens of states, and the epidemic spread.
When prices drop in a neighborhood, they don't just fall on homes with subprime loans. Everyone gets hit hard. For the first time since the Great Depression, American home values nationally fell nearly 20% since their peak, and in some places much more. Plunging prices trigger more foreclosures. The infection is still spreading even today. Even for those staying out of foreclosure, home equity has been wiped out -- and with it the equity to pay for a college education, or a new car, or to fall back on when medical bills come due.
Now, as even Wikipedia will tell you, "the term 'subprime' refers to loans that do not meet Fannie Mae or Freddie Mac guidelines." So how can Republicans point to Fannie and Freddie to lay blame when asked about the current housing crisis? Only to change the subject and point away from the inevitable outcome of pervasive underregulation.
The shoddy, even predatory mortgage lending that led first to the sub-prime meltdown, then to the national foreclosure crisis and loss of trillions of dollars in home value, was brought to American families primarily by private investment companies, not government sponsored ones.
There were plenty of laws and regulatory tools on the books which might have prevented this, if the current administration had wanted to use them. Just this past July 14th, the Federal reserve finally cracked down on "unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices." Under the Home Ownership and Equity Protection Act of 1994, they finally prohibited practices which they had allowed for years, like making a loan without verifying a borrowers' ability to repay from income and assets apart from the home's value, or charging exorbitant prepayment fees.
Of course, many of the same Republicans today blaming it all on Fannie and Freddie stood by, or even applauded, when in 2002 the Fed rejected most of these same protections urged by many consumer groups. For example, a coalition of advocacy groups in 2001 implored the Fed to use the power of HOEPA to protect borrowers, pointing out that "access to predatory lending is not a benefit to consumers. Destructive credit is worse than no credit at all. This is evident in light of the increase in foreclosures, the disintegration of many low income and minority neighborhoods, and the erosion of the tax base of cities due to foreclosures."
Other regulators, and the Republican Congressional oversight committees charged with looking over their shoulders, sat on their hands as new and risky products were rolled out. Wall Street stampeded into the home lending market with pools of mortgage-backed securities that ratings agencies stamped blessed as AAA. The SEC did nothing to police the spread of risk.
When the Senate held oversight hearings on ratings agencies in 2006, well into the era of massive subprime securitization, Senator Sununu among others was for holding off greater oversight with statements such as " I don't see the problem as being one of a lack of regulation or need for additional regulation in the area of particular business practices as much as it is a question of a lack of competition, and I think that competition is lacking in part because there are a number of barriers to entry and one of the most significant barriers to entry are regulatory, and they're the barriers that have been created by -- unintended but have been created by some of the existing regulations and we need to look carefully at those."
To be sure, for years there has been much to criticize about Fannie Mae and Freddie Mac -- issues with transparency, misstated earnings, aggressive lobbying, and more fundamental questions about whether the public was getting full benefit in how they carried out their mission in exchange for an implicit governmental guarantee -- and commentators across the political spectrum have raised such questions. But laying the blame at their doorstep for today's boom and bust turmoil that is devastating hundreds of previously stable communities around the country, and spreading instability worldwide through the global financial markets?
Then again, if just mentioning their names change the subject away from the Republican record of "deregulate here, deregulate now", maybe Fannie and Freddie can't be all bad.
Dr. Tantillo ('the marketing doctor' who has blog devoted to branding - http://blog.marketingdoctor.tv ) did a post naming Freddie & Frannie this week's 'brand loser(s)' and calling for what he terms a "brandover," arguing that marketing will need to play a key role if F&F are too be successful in the future--and that they'll need a new name.
Here's a link to Tantillo's full post: http://blog.marketingdoctor.tv/2008/09/12/brand-winners-and-losers.aspx
Subprime lending:
It is clear from the article how this type of lending became attractive to lenders. Subprime borrowers may exist as two distinct types of people, those who dreamed of having their own home -- a piece of the pie, and those trying to make a quick buck with no money down loans, and other methods fraught with serious peril, but real upside potential.
Filters:
Who is to blame for decline -- Democrats or Republicans? I think we need to define what greed and inept mean, then look at the last forty to fifty years (if not 100) of fiscal policy decisions, and see who acted morally inept or greedy or acted on the behalf of the morally inept or greedy. This sort of analysis would require unprecedented transparency (read honesty) and therefore it is unlikely to happen. What one can determine is people are living well now who did or still work in Washington. How they came to live so well is another place the analysis can go to uncover truth if you can tie wellness to legislation. Associations do matter and lobbyists seem to be like maggots on a carcass in Washington. It does not matter which Party because this is a failing at the human level and both Parties contain humans.
The blame game is a lame game in the face of death.
You have the question that is on many minds. Does the market always rule? I think it rules when it rules free of corruption, free of greed, free of guilt for wrongdoing -- free of selfishness that hurts many. The free market is not the problem. Our problem is the problem of the caveperson. It is the problem enunciated by the great scholar Rodney King, “Can't we all get along?” The answer to the question of war, of poverty, of famine, of disease, of all the many afflictions that face us as a world, centers on this question. I have played a consistent drumbeat in this forum. I will tap the tune again because it is the central question before all Americans here in this day at this time.
Who are we? Who are we morally, who are we as a family of people bound together by geography and social circumstance? Are we people, who step over the dead and dying? Are we people, that kill and make excuses for lying? Are we people, who cause pain and start mothers to crying? Are we people, who practice hate and greed, but concerning pain we continue denying?
Who are we? We will know Nov. 4, 2008.
"Wall Street stampeded into the home lending market with pools of mortgage-backed securities that ratings agencies stamped blessed as AAA."
Wondering how these securities were ranked AAA? Aren't there guidelines on how to rank these? As I understand it, AAA is top of the line- should be minimal risk.
Rick Davis, Campaign Manager, led the Homeownership Alliance that fought for Fannie, Freddie and others.
Charlie Black, a top adviser, earned huge sums lobbying Fannie and Freddie.
Fred Malek, a national finance co-chair, is a former Freddie board member.
McCain Fannie lobbyists:
Wayne Berman – National Finance Co-Chairman
Kirk Blalock - fundraiser
Kirsten Chadwick – fundraiser
Arthur Culvahouse – Headed the veep hunt
John Green – Congressional liaison
Richard Hohlt – fundraiser
Aleix Jarvis – fundraiser
Mike Kennedy – fundraiser
Alison McSlarrow – Women for McCain Steering committee
Aquiles Suarez – Economic adviser
McCain Freddie lobbyists:
Wayne Berman – National Finance Co-Chairman
Carlos Bonilla – economic adviser
David Crane – senior policy adviser
Melissa Edwards – fundraiser
Juleanna Glover Weiss – fundraiser
John Green – Congressional liaison
Susan Molinari – Women for McCain Steering committee
Don Sundquist – Tennessee State co-chair
This list is not exhaustive.
Current problems are similar to the problems that caused Silver Star Bank to fold.
McCain's son Andrew was involved in Silver Star Bank costing American taxpayers billions of dollars in debt, just as the Keating Five scandal left American taxpayers with billions of debt.
"Nevada regulators closed Silver State and the FDIC was appointed receiver of the bank, based in Henderson, Nev."
"Silver State Bank ran into difficulty because of a substantial amount of "poor-quality loans primarily related to real estate development" in southern Nevada and other distressed markets, FDIC spokesman David Barr said. "
"Not a single reporter in the main stream media has looked how the McCain's were able to have their family investments and their family foundation's interests protected while Silver State went belly up."
"MSM has ignored the McCain's Wall Street portfolio and the investments of McCain's campaign advisors that will be protected by the bailouts."
http://www.cbsnews.com/stories/2008/09/06/business/main4422652.shtml
http://www.huffingtonpost.com/jayne-lyn-stahl/andrew-mccain-resigns-fro_b_115233.html
http://www.faulkingtruth.com/Articles/BlogFest/1097.html
REICH: " In the latter years of the Clinton administration -- when I was not there any longer, I should add -- there was an attempt by Alan Greenspan and Bob Rubin and a few others to deregulate financial markets, and they did. They split commercial banking off from investment banking. And many people say, "Well, that was the beginning of the problem," and then, of course, in 2003-2004, Alan Greenspan reduced short-term interest rates to the point where every single bank wanted to lend money. I mean, if you could stand up straight you could get a bank loan because there was so much pressure to get that money out the door. Money was so cheap. So, yes, there is some responsibility on Democrats, some responsibility on Alan Greenspan and the Fed."
THEY LIKE CONTROLING WHO CAN BUY A HOME AND WHERE !!!! THEY LOVE THAT POWER OVER THE PEOPLE!!!!!!
THATS WHY FANNIE MAE WAS CREATED PLUS TO STOP PREIDATOR LENDING AGAINST MINIORITIES!!!!!!
]
UNTIL BEAR STERNS AND SEVERAL BANKS WENT UNDER FANNIE MAE ONLY HELD 4% IN BAD LOANS!!!!!
FREDDIE MAC ONLY HELD 3% !!!!!
THE BAD LOANS FROM THOSE FAILED BANKS WERE FORCED ON FANNIE MAE AND FREDDIE MAC !!!!!!!!
BEAR STERNS WENT AROUND FANNIE MAE TO BUY PACKAGED LOANS DIRECTLY FROM COUNTRY WIDE AND OTHERS WITHOUT EVEN CHECKING TO SEE IF THE HOMES EVEN EXISTED!!!
MANY LOANS WERE ON HOMES THAT DO NOT EVEN EXIST !!!!!!
THE FBI WILL NOT INVESTIGATE THE BAD LOANS FOR FRAUD UNDER $249,000.00 BECAUSE THERE ARE SO MANY !!!!!!!!!
Everything the government touches, they break.
Every regulation is just a special interest buying government influence to help their specific gain.
These markets are completely regulated. It is the regulations that are bringing about their specific consequences. They have inhibited free choices and provided benefits for a few.
OVERSIGHT !!!!
IT WORKED FOR 72 YEARS !!
EXPECT WHEN BUSH'S , MCCAIN, AND KEETING WERE IN BANKING.
Government is willing to buy all of those mortgages or underlying properties that the people of Main Street overpaid for.
Government is bailing out people who paid too much for homes or who found they could not afford those homes. The government is bailing out the banks because the people of Main Street made a bad choice.
Which state is high on the list of over building - Arizona......where was John McCain.....
Americans are so intelligent .
The repubs have had 40 years to perfect their destructive distortion of the news to the masses. They got the mega phones to preach it 24/7.
Fannie Mae is one of the last 'new deal' programs FDR admin started that was designed to provide protection for the working class - middle and poor in the housing market. The repubs have been eyeing this institution for years and years. Now they've accomplished their goal. Once we pay off the debt, Paulson said it would come back as a private entity.
Fannie Mae only held 4% in bad loans until Bear Sterns and all the banks bad loans were forced on them.
Freddie Mac only had 3% in bad loans at the time.
Do you know that THOUSANDS of Loans were for homes that were never built .
So you know that the FBI currently only investigates FRAUD of over $249,000.00 because there are so many they just can't take anymore !!!!!!!!!!
Many loans for $300k to $500k were make on VACANT LOTS !!!!!!!!