{"id":2486,"date":"2009-07-07T22:32:07","date_gmt":"2009-07-08T02:32:07","guid":{"rendered":"http:\/\/www.jasetaro.com\/blog\/?p=2486"},"modified":"2011-04-25T19:52:25","modified_gmt":"2011-04-25T23:52:25","slug":"anatomy-of-a-crisis-the-fannie-mae-and-freddie-mac-debacle","status":"publish","type":"post","link":"https:\/\/www.jasetaro.com\/blog\/2009\/07\/07\/anatomy-of-a-crisis-the-fannie-mae-and-freddie-mac-debacle\/","title":{"rendered":"Anatomy of a Crisis: The Fannie Mae and Freddie Mac Debacle"},"content":{"rendered":"<p>Republican members of the House Committee on Oversight and Government Reform have released a report analyzing the role of the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, in the housing meltdown. You can read the full report <a href=\"http:\/\/republicans.oversight.house.gov\/News\/PRArticle.aspx?NewsID=595\" target=\"_blank\">here<\/a>, but here are the highlights:<\/p>\n<ul>\n<li><span id=\"__end\"><em><strong>Political pressure led to the erosion of responsible lending practices<\/strong><\/em>:<\/span> In the early 1990s, Fannie and Freddie began to come under considerable political pressure to lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers. (p.6)<\/li>\n<li><em><strong>Lower down payments led to housing prices that outpaced income growth<\/strong><\/em>: Once government-sponsored efforts to decrease down payments spread to the wider market, home prices became increasingly untethered from any kind of demand limited by borrowers\u2019 ability to pay.\u00a0 Instead, borrowers could just make smaller down payments and take on higher debt, allowing home prices to continue their unrestrained rise.\u00a0 Some statistics help illustrate how this occurred.\u00a0 Between 2001 and 2006, median home prices increased by an inflation-adjusted 50 percent, yet at the same time Americans\u2019 income failed to keep up.\u00a0 (p. 11)<\/li>\n<li><strong><em>Members of an \u201caffordable housing\u201d coalition shared profits with political allies to help legitimize their business practices<\/em><\/strong>: Fannie Mae created and used The Fannie Mae Foundation to spread millions of dollars around to politically-connected organizations like the Congressional Hispanic Caucus Institute.\u00a0 It also hired well-known academics to give an aura of academic rigor to policy positions favorable to Fannie Mae.\u00a0 One paper coauthored by now-Director of the Office of Management and Budget Peter Orszag, concluded that the chance was minimal that the GSEs were not holding sufficient capital to cover their losses in the event of a severe economic shock.\u00a0 The authors suggested that \u201cthe risk to the government from a potential default on GSE debt is effectively zero,\u201d and that \u201cthe expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.\u201d (p.7)<\/li>\n<li><em><strong>The Government Sponsored Enterprises led the way into the housing crisis<\/strong><\/em>: Fannie Mae and Freddie Mac were leaders in risky mortgage lending.\u00a0 According to an analysis presented to the Committee, between 2002 and 2007, Fannie and Freddie purchased $1.9 trillion of mortgages made to borrowers with credit scores below 660, one of the definitions of \u201csubprime\u201d used by federal banking regulators. This represents over 54% of all such mortgages purchased during those years. (p.24)<\/li>\n<\/ul>\n<p>Democrats, I&#8217;m sure, will call the report a partisan hatchet job and blame the housing market meltdown entirely on greed and mismanagement on Wall Street&#8230; Greed and mismanagement undoubtedly played a part but, that does not excuse government policy makers from culpability. The policy and regulatory decisions made by the Federal Government and the Federal Reserve played principle roll in laying foundation upon which this house of cards built. They have to be called to account for their actions along with Wall Street.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Republican members of the House Committee on Oversight and Government Reform have released a report analyzing the role of the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, in the housing meltdown. You can read the full report here, but here are the highlights: Political pressure led to the erosion of responsible lending practices: [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[26,7],"tags":[752,113,114,304,753,496],"class_list":{"0":"post-2486","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-economy","7":"category-politics","8":"tag-committee-on-oversight-and-government-reform","9":"tag-fannie-mae","10":"tag-freddie-mac","11":"tag-gop","12":"tag-gse","13":"tag-mortgage-crisis","14":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pfpI7-E6","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":332,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/09\/09\/fannie-freddie\/","url_meta":{"origin":2486,"position":0},"title":"Fannie &#038; Freddie&#8230;","author":"Jeff","date":"September 9, 2008","format":false,"excerpt":"I'm not in a writing mood today but I hate to leave this page silent so I thought I'd share a few must reads on the Fannie Mae & Freddie Mac bailout with you. First is the Op Ed by John McCain in today's Wall Street Journal: We'll Protect Taxpayers\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1096,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/12\/11\/wsj-congress-whitewashing-fannie-and-freddie\/","url_meta":{"origin":2486,"position":1},"title":"WSJ: Congress Whitewashing Fannie and Freddie","author":"Jeff","date":"December 11, 2008","format":false,"excerpt":"With all the buzz about the Feds corruption probe of Gov. Illinois Rod Blagojevich it's easy for things like this Wall Street Journal column to be missed. Whitewashing Fannie Mae Congress begins its self-absolution campaign. Henry Waxman's House Committee on Oversight and Government Reform met Tuesday to examine \"The Role\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2443,"url":"https:\/\/www.jasetaro.com\/blog\/2009\/06\/24\/barney-franks-bad-idea\/","url_meta":{"origin":2486,"position":2},"title":"Barney Frank&#8217;s Bad Idea","author":"Jeff","date":"June 24, 2009","format":false,"excerpt":"From the Wall Street Journal: Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to \"roll the dice\" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":664,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/06\/finally-mccain-blasts-obama-democrats-for-fanniefreddie-meltdown\/","url_meta":{"origin":2486,"position":3},"title":"Finally: McCain Blasts Obama, Democrats for Fannie\/Freddie Meltdown","author":"Jeff","date":"October 6, 2008","format":false,"excerpt":"Update: Scroll down for the video. It looks like the gloves are really off, John McCain is going to finally start talking about the economy and going after Barack Obama and Democrats for their roll in the failure of Fannie Mae and Freddie Mac. Our current economic crisis is a\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":587,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/02\/in-thier-own-words-what-they-said-about-fannie-freddie\/","url_meta":{"origin":2486,"position":4},"title":"In Their Own Words: What They Said About Fannie &#038; Freddie","author":"Jeff","date":"October 2, 2008","format":false,"excerpt":"The Wall Street Journal has a long history over covering the abuses of Fannie Mae and Freddie Mac today\u00a0 they're naming names and calling out the Democrats who helped cause our financial crisis. House Financial Services Committee hearing, Sept. 25, 2003: Rep. Gregory Meeks, (D., N.Y.): . . . I\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"[nowides]","src":"https:\/\/i0.wp.com\/s.wsj.net\/public\/resources\/images\/nowides03202003164521.gif?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":317,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/09\/08\/the-gaffe-that-wasnt\/","url_meta":{"origin":2486,"position":5},"title":"The Gaffe That Wasn&#8217;t&#8230;","author":"Jeff","date":"September 8, 2008","format":false,"excerpt":"The Huffington Post is reporting that Sarah Palin has made her first gaffe: Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend. Speaking before voters in Colorado Springs, the Republican vice\u2026","rel":"","context":"In &quot;Economy&quot;","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/2486","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/comments?post=2486"}],"version-history":[{"count":0,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/2486\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/media?parent=2486"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/categories?post=2486"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/tags?post=2486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}