Tuesday, April 12, 2016

Freddie, Fannie and Barney

I am much in favor of all people having an affordable place to live. I do not think it is reasonable for the government to expect for profit organizations to take a loss to implement government goals. Social engineering is not well done by committee, which is basically what our government acts like. Social engineering is most effective when done by dictators, who are quite willing to murder all detractors.

In 1998 Andrew Cuomo, the HUD Secretary under Clinton announced a discrimination suit settlement against Accubanc Mortgage Corporation of Dallas, Texas that forced the company to pay a fine of $2.1 billion for not making loans to minorities who could not afford to repay the money. Yes. The government was making it clear that it expected loans to be made to minorities that could not afford the loans. 

In 1999 the Gramm-Leach-Biley Act (GLBA) repealed two portions of US Banking Act of 1933 removing restrictions on affiliations between banks and security firms. Making the combination of Citigroup permanently legal. Unfortunately, GLBA failed to provide SEC oversight in the bill, so there was no regulation. The bill also allowed officers of one company to serve as officers in other companies that were in completely divergent businesses. Now all the pieces were in place for disaster.

The Fair Housing Amendments Act of 1998, signed into law by Clinton greatly expanded the number of people that banks and mortgage companies must provide housing loans they could not afford.

By the time GW Bush got into office there were already millions of people in homes they could not afford and foreclosures were on the increase.
Fannie Mae and Freddie Mac began speculating that the government would make good on these bad loans and started buying these bad mortgages from banks all over the country. The defaults continued to increase and the government was not taking action to resolve the problem. Freddie and Fannie, along with commercial banks and mortgage companies started bundling these sub-prime loans into stock packages with some good loans they could trade on the open market. By hiding the bad loans among other items in the packages, the bad loans got into most of the stock portfolios.

HUD community organizers and independent community organizers working for and with Acorn were badgering and coercing banks all over the country to keep giving mortgage loans to people that could not afford them.

Economists and regulators recognized the problem and tried to warn congress. Barney Frank was head of the Banking Committee in the House of Representatives and was well aware that a problem was brewing in the housing industry. Frank was a big advocate for getting people with lower incomes into houses. As early as 2003 he openly recognized the problem by stating, “I want to roll the dice a little bit more in this situation toward subsidized housing.” And roll the dice he did at our expense. Being highly respected for his position and refusing to slow the problem, Frank was a major cause of the severity of the crash.

My feeling is that the government should get out of the social engineering business – which is all that takes place within Housing and Urban Development. This agency should be replaced by an organization that actually provides the means for people with lower income to acquire housing. Noble goals often create disastrous outcomes, as was the crash of 2007-2008.

No comments:

Post a Comment