Who is responsible for this mortgage/financial train wreck?

Who is responsible for this mortgage/financial train wreck?
By Daniel B. Jeffs, founder
Occtober 3, 2008

Who is responsible for this mortgage/financial train wreck?

Fannie Mae and Freddie Mac were put under U.S. government conservatorship on September 7, 2008 at a taxpayer cost of $200 billion. Countrywide, the nation's largest mortgage lender failed, along with large Wall Street mortgage investment banks, and the nation's 4th largest bank, Washington Mutual. The American mortgage/financial collapse was underway.

President Bush proposed a $700 billion taxpayer bailout of the mortgage and banking industry meltdown. The Democrat-controlled Congress wanted to do it, but they would not without Republican support because they don't want to be blamed if it doesn't work. The bailout was, of course, approved. Not to do it would have probably caused further financial chaos here and throughout the world financial markets, to which we are inextricably tied.

Who (alive today) is primarily to blame for the easy mortgage madness, the inflation of housing costs and the mortgage/financial meltdown? Former presidents Jimmy Carter and Bill Clinton, and Chairman of the House Financial Services Committee, Representative Barney Frank, Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, Senate Banking Committee Chairman, Christopher Dodd, Senator Chuck Schumer, and all the complicit congressional Democrats who facilitated the economic disaster

Carter's CRA, the Clinton Administration and Representative Barney Frank encouraged risky lending, and put pressure on banks and mortgage lenders such as Countrywide, which snowballed into the subprime mortgage crisis.

Barney Frank, Chris Dodd and all complicit Democrats in the House and Senate should be held to account and removed from office without retirement pay. Likewise, Former presidents Carter and Clinton should have all taxpayer compensation cut-off.

The burning question is, why are elected officials and the news media (other than Fox News and newspapers such as the Daily Press) not explaining what really happened, what caused the housing and mortgage madness and financial meltdown, and laying blame where it belongs? To understand why, read on, and watch the Fox News Special on the matter:

The Federal Housing Administration (FHA) was created as part of the National Housing Act of 1934. The goals of the organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market. In 1965, the FHA became part of the Department of Housing and Urban Development (HUD). FHA insurance premiums are paid by homeowners, which are included in monthly payments, and it is the only government agency that is completely self-funded and comes at no cost to taxpayers.

The total number of FHA loans fell from 19 percent in 1996 to 6 percent in 2005, with almost all of the decline occurring since 2001.

If government had done nothing further, and not created the housing/mortgage monsters that followed the creation of the FHA, this mortgage/financial meltdown would not have happened. Government-driven mortgage financing for unqualified homebuyers turned into easy-money mortgage madness, which created mortgage and finance monsters that threatened the entire economy.

The Federal National Mortgage Association (Fannie Mae) was created in 1938 as a government agency by FDR' New Deal to provide liquidity to the mortgage market. For the next thirty years, Fannie Mae held a virtual monopoly on the secondary mortgage market.

In 1968, LBJ removed Fannie Mae from the annual balance sheet of the federal budget and converted it into a private corporation. The guarantor of government-issued mortgages was transferred to the new Government National Mortgage Association (Ginnie Mae)

The Emergency Home Finance Act of 1970 created Freddie Mac. The goal was to create a secondary market for conventional mortgages, as indicated in the Fannie Mae charter.

In 1977, Former President Jimmy Carter created the Community Reinvestment Act (CRA) which was passed by the 95th Congress to increase affordable housing, despite opposition from the banking community.

In 1992, the regulator of Fannie Mae was critically weakened by the actions of Congressional Representative Barney Frank. The agency was required to get its budget approved by Congress, while agencies that regulated banks set their own budgets. That gave congressional allies an easy way to exert pressure. In the late 1990's, under the direction of the Clinton Administration's relaxing of lending standards, Fannie Mae CEO Franklin Raines allowed subprime borrowers to obtain loans.

In 1995, President Clinton's administration revised Community Reinvestment Act (CRA) regulation, which allowed mortgage lenders like Countrywide not to mitigate loan risk with savings deposits as do traditional banks, using the new subprime authorization, which is known the secondary mortgage market. The revisions allowed securitization of CRA loans containing subprime mortgages, which were first started by Bear Sterns in 1997. The number of CRA mortgage loans increased 39 percent between 1993 and 1998, while other loans increased only 17 percent. Other rule changes gave Fannie Mae and Freddie Mac extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, as opposed to 10% for banks.

By 2007, Fannie Mae and Freddie Mac, who securitize half of our nation's $12 trillion mortgage market, accumulated significant bad debt, but because they were not registered under the 1933 or 1934 Securities Act, they were not required to disclose their risky portfolios.

In 2003, the Bush administration proposed changes to move governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. Spearheaded by Representative Barney Frank, the proposal was defeated. Frank said, "Theses two entities -- Fannie Mae and Freddie Max -- are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we see in terms of affordable housing."

In 2004, a congressional hearing was held pursuant to charges by the Director of the Office of Federal Housing Enterprise Oversight (OFHEO) regarding irregularities at Fannie Mae and regarding CEO Franklin Raines. Raines, Fannie Mae and Freddie Mac were vigorously defended by the ranking member of the Financial Services Committee, Barney Frank and other Democrats on the committee. Representative Shays and other Republicans on the committee expressed deep concerns about Fannie Mae's severe lack of capital, double standards, hiring too many lobbyists, paying lobbyists not to work against it, and the clear and present danger of a financial collapse.

Fannie Mae CEO Franklin Raines subsequently stepped down because of accounting irregularities at Fannie Mae, which paid him $90 million in the process. In 2006, the OFHEO announced a suit against Raines to recover $50 million in payments made to him based on overstated earnings. Raines is now advising Barack Obama in his campaign for president.

In 2005, the Bush administration made further attempts to reign-in the risky buying and lending practices of Fannie Mae and Freddie Mac, which were knocked down by the Democrats in Congress. Senate Republicans introduced legislation to do the same, but all their efforts, including measures introduced by Senator John McCain, were defeated by Senate Democrats lead by Senators Chris Dodd and Chuck Schumer. The proposed legislation was blocked from a full Senate vote.

As Chairman of the House Financial Services Committee, Barney Frank sits at the center of power. Frank knew that his defense of the failed mortgage system was catching up with him, so he steered a major housing relief bill of 2008, which aimed to protect thousands of homeowners from foreclosure by falling back on FHA to substantially increase its insurance of home loans, including 2,3 and 4 unit dwellings. The increase in insured loans allows homeowners to re-finance bad loans or to purchase new homes if they had lost their homes to foreclosure.

Frank was at the forefront of House approval of the $700 billion taxpayer bailout of the financial train wreck that he substantially engineered. Adding insult to injury, Speaker Nancy Pelosi fraudulently pointed the finger at President Bush's failed economic policies for causing the meltdown. Many House Republicans rejected the bailout because Democrats added 100 pages and demanded the inclusion of such things as giving $20 billion to the Association of Community Organizations for Reform Now (ACORN) The same organization that intimidated lending institutions into making home loans to those who could not afford them. The Senate then added over 300 pages and $billions in pork for congressional re-elections, and passed the bailout, which was approved by the House and signed by President Bush on October 3, 2008.

After the House passed the final bailout package, Speaker Nancy Pelosi and her cohorts took credit for the rescue, heaping praise upon Barney Frank as the leader of the rescue, and upon their presidential candidate Barack Obama for his direction and support. Rather than a rescue, the taxpayer fraud was, in effect, a bailout of Barney Frank and others responsible for the mess.

Congress, and government in general is being administered by fear and crisis, replete with a cast of bad characters. We need to dump the players and makeover Washington with responsive, nonpartisan, responsible people who represent us, not themselves.