part10
Learning The Right Lessons
Washington must reexamine its politically expedient but irresponsible approach to
encouraging higher levels of homeownership based on imprudently small down payments and too little emphasis on borrowers’ creditworthiness and ability to repay their loans. Unfortunately, very few elected officials would be comfortable echoing Yale University economist and housing expert Robert Shiller, who writes: “[T]he subprime housing dilemma in the United States points up the problems with over-promoting homeownership. Homeownership, for all its advantages, is not the ideal housing arrangement for all people in all circumstances.”93 However, failing to learn the mistakes of our overleveraged binge on mortgage debt will almost certainly doom the country to repeating the same mistakes again and again.
Lopez, Mark Hugo, Gretchen Livingston and Rakesh Kochhar, Pew Hispanic Center, “Hispanics and the Economic Downturn: Housing Woes and Remittance Cuts,” Jan. 8, 2009, pg i.
Shiller, Robert J., The Subprime Solution, Princeton, NJ: Princeton University Press, 2008, pg. 6.
U.S. Department of the Treasury, “Monthly Treasury Statement of Receipts and Outlays of the United States Government,” Apr. 30, 2009,accessed at http://fms.treas.gov/mts/mts0409.pdf.
Board of Governors of the Federal Reserve System, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” May 20, 2009, accessed at,
http://www.federalreserve.gov/releases/h41/Current/h41.pdf.
Morgenson, Gretchen and Charles Duhigg, “Mortgage Giant Overstated the Size of Its Capital Base,” The New York Times, Sept. 7, 2008.
See note 59, supra.
Pinto, Edward, presentation to the American Enterprise Institute, “How Serious Is the Mortgage Problem That Will Confront President Obama?” Jan. 16, 2009.
Freddie Mac, document produced to the Committee, Bates FMAC0013675.
Freddie Mac, document produced to the Committee, Bates FMAC0013676.
Freddie Mac, document produced to the Committee, Bates FMAC0013757.
See note 72, supra.
Jickling, Mark, Congressional Research Service, “Fannie Mae and Freddie Mac in Conservatorship,”
Sept. 15, 2008, pg. 1.
83
Congressional Research Service, “Housing and Economic Recovery Act of 2008,” Dec. 5, 2008, pg. 1.
Freddie Mac, document produced to the Committee, Bates FMAC0013756.
Fannie Mae, document produced to the Committee, Bates FM-COGR_00177162 – FM-
COGR_0177172.
Freddie Mac, document produced to the Committee, Bates FMAC0013672.
Freddie Mac, document produced to the Committee, Bates FMAC0013739.
Freddie Mac, document produced to the Committee, Bates FMAC0013673.
Freddie Mac, document produced to the Committee, Bates FMAC0013801-FMAC0013802.
Schmidt, Susan and Maurice Tamman, “Housing Push for Hispanics Spawns Wave of Foreclosures,” The Wall Street Journal, Jan. 5, 2009.
Mudd Daniel, speech, Jan. 4, 2005, accessed at
rtsp://video.c-span.org/project/c04/c04010405_cbc.rm .
See note 12, supra
Paige, Leslie, Citizens Against Government Waste, “GSE Reform in Critical Stage,” May 1, 2004,
accessed at http://www.cagw.org/site/News2?page=NewsArticle&id=7769.
Office of Federal Housing Enterprise Oversight, Press release, “Fannie Mae Façade,” May 23, 2006,
accessed at http://www.ofheo.gov/media/pdf/fnmserelease.pdf.
Fannie Mae, document produced to the Committee, Bates FM-COMP-COGR-00009.
Freddie Mac document produced to the Committee.
House Financial Services Committee hearing, Sep. 25, 2003.
Office of Federal Housing Enterprise Oversight, “Report of the Special Examination of Freddie Mac,” Dec. 2003, pg. vi, accessed at http://www.ofheo.gov/media/pdf/specialreport122003.pdf.
Jickling, Mark, Congressional Research Service, “Accounting Problems at Fannie Mae,”Dec. 7, 2006.
Secter, Bob and Andrew Zajac, “Rahm Emanuel’s Profitable Stint at Mortgage Giant,” The Chicago Tribune, Mar. 26, 2009.
Golden, Dan, “Angelo’s Fannie Pack,” Conde Nast Portfolio, Jul. 17, 2008.
House Oversight and Government Reform Committee Republican Staff, “Friends of Angelo: Countrywide’s Systematic and Successful Effort to Buy Influence and Block Reform,” Mar. 19, 2009.
See note 31, supra.
Pinto, Edward, information provided to the Committee on Oversight and Government Reform, based on an analysis of securities filings and mortgage market data.
Senator Charles Schumer, press release, Nov. 20, 2006, accessed at
http://schumer.senate.gov/SchumerWebsite/pressroom/record.cfm?id=266131 .
See note 36, supra.
See note 12, supra.
Sammon Bill, “Lawmaker Accused of Fannie Mae Conflict of Interest,” Fox News, Oct. 3, 2008,
accessed at http://www.foxnews.com/story/0,2933,432501,00.html.
See note 34, supra. Ibid.
Gigot, Paul A., “The Fannie Mae Gang,” The Wall Street Journal, Jul. 23, 2008.
Murray, Matthew, “A $90 Million Package Gets Lambasted Again,” Roll Call, Dec. 10, 2008.
See note 44, supra.
Yost, Pete, “Freddie Mac Lobbyist Staged 50 GOP Fund-Raisers as Congress Let Legislation Die,” The Associated Press, Jul. 18, 2003.
Common Cause, “Ask Yourself Why…They Didn’t See This Coming,” Sept. 24, 2008, in note 27, supra.
Open Secrets, “Update: Fannie Mae and Freddie Mac Invest in Lawmakers,” accessed at
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html.
Federal Election Commission, Press release, “Federal Home Loan Mortgage Corporation (“Freddie Mac”) Pays Largest Fine in FEC History,” Apr. 18, 2006, accessed at http://www.fec.gov/press/press2006/20060418mur.html.
Congressional Budget Office, “Assessing the Public Costs and Benefits of Fannie Mae and Freddie Mac,” May 1996, pg. xiv, accessed at http://www.cbo.gov/ftpdocs/0xx/doc13/Fanfred.pdf. See also, Passmore, Wayne, Board of Governors of the Federal Reserve, “The GSE Implicit Subsidy and the Value of Government Ambiguity,” 2005, pg. 3, accessed at http://www.federalreserve.gov/Pubs/feds/2005/200505/200505pap.pdf.
Data from Standard & Poor’s and Moody’s, accessed at www.mortgagedaily.com.
See note 13, supra, pg. 8.
See www.opensecrets.org. Vaida, Bara, “Battling Fannie and Freddie,” National Journal, Oct. 18, 2008, pgs. 46-47.
See note 7, supra. Morse, Neil, “Looking for New Customers,” Mortgage Banking, Dec. 1, 2004, in note 13, supra.
Simpson, Glenn R., “Countrywide Made Home Loans to Gorelick, Mudd,” The Wall Street Journal, Sept. 25, 2008.
Muolo, Paul and Matthew Padilla, Chain of Blame, New York: John Wiley & Sons, 2008, pg. 112.
Freddie Mac, document produced to the Committee, Bates FMAC0013683-FMAC0013692.
See note 23, supra, pg. 5. 35
Ullmann, Owen, “Crony Capitalism: American Style,” The International Economy, Jul/Aug 1999.
Office of Federal Housing Enterprise Oversight, “Report of the Special Examination of Fannie Mae,” May 2006, pg. 58, accessed at http://www.ofheo.gov/media/pdf/FNMSPECIALEXAM.PDF.
LaPerriere, Andrew, “Housing Bubble Trouble: Have we been living beyond our means?” The Weekly Standard, Apr. 10, 2006.
Johnson, Glen, “Frank Says GOP Housing Attacks Racially Motivated,” Associated Press, Oct. 6, 2008.
According to http://www.Investopedia.com , “automated underwriting” is “a computer-generated loan underwriting decision. Using completed loan application information, an automated underwriting system retrieves relevant data, such as a borrower’s credit history, and arrives at a logic-based loan decision. Automated underwriting engines can provide near-instantaneous loan approval or denial decisions; therefore, implementing automated underwriting systems can save a considerable amount of time, as manual underwriting can take as long as 60 days to complete. In addition to the time savings, automated underwriting is preferred because it is based on algorithms, eliminating human bias. Freddie Mac maintains and markets a large automated underwriting engine known as Loan Prospector, and Fannie Mae has an
automated underwriting engine known as Desktop Underwriter.”
Wallison, Peter J., American Enterprise Institute, “Cause and Effect: Government Policies and the Financial Crisis,” pgs. 3-4, Nov. 2008.
Barth, James R., Tong Li, Triphon Phumiwasana, and Glenn Yago, “Surprise: Subprime Mortgage Products Are Not The Problem!” The Milken Institute, Dec. 2007, pg. 1, accessed at
http://www.milkeninstitute.org/pdf/Subprime-Mortgage-Products.pdf.
According to http://www.Investopedia.com , “leverage” is, “the amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.”
Leonnig, Carol D., “How HUD Mortgage Policy Fed the Crisis,” The Washington Post, Jun. 10, 2008.
Alarkon, Walter, “Clinton Rejects Blame for Financial Crisis,” The Hill, Sept. 9, 2008, accessed at
http://thehill.com/leading-the-news/clinton-rejects-blame-for-financial-crisis-2008-09-25.html.
Ibid, pgs. 54-57.
CRA volume data accessed at http://www.ffiec.gov/craadweb/national.aspx , total subprime mortgage originations accessed at www.mortgagedaily.com.
U.S. Department of Housing and Urban Development, The National Homeownership Strategy: Partners in the American Dream, May 1995, pgs. 4-4, 4-5, 4-10.
Stiglitz, Joseph E., Jonathan M. Orszag and Peter R. Orszag, “Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard,” Fannie Mae Papers, Mar. 2002.
U.S. Department of the Treasury, “Monthly Treasury Statement of Receipts and Outlays of the United States Government,” Apr. 30, 2009, accessed at http://fms.treas.gov/mts/mts0409.pdf.
See also, Board of Governors of the Federal Reserve System, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” May 14, 2009, accessed at http://www.federalreserve.gov/releases/h41/Current/h41.pdf.
Hossain, AKM Rezaul, “The Past, Present and Future of Community Reinvestment Act (CRA): A Historical Perspective,” Oct. 2004, pg. 13.
“Federal National Mortgage Association Charter Act,” accessed at http://www.fhfa.gov/GetFile.aspx?FileID=29 .
Roner, Valencia, “Fannie Mae’s Trillion-Dollar Giveaway,” Black Enterprise, Nov. 1, 1994.
McLean, Bethany, “Fannie Mae’s Last Stand,” Vanity Fair, Feb. 2009.
Wallison, Peter J. and Charles W. Calomiris, American Enterprise Institute, “The Last Trillion-Dollar Commitment,” Sept. 2008, pg. 3. See note 12, supra.
Fannie Mae’s original Holmes, Steven A., “Fannie Mae Eases Credit to Aid Mortgage Lending,” The New York Times, Sep. 29, 1999, pg. C2.
Liebowitz, Stan J., “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,” Independent Policy Report, Oct. 3, 2008, accessed at http://www.independent.org/pdf/policy_reports/2008-10-03-trainwreck.pdf.
It was not until scandals in 2003 and 2004 Public Law 102-550, Sec. 1362.
Kling, Arnold, testimony before the House Oversight and Government Reform Committee, Dec. 9, 2008.
Pinto, Edward, testimony before the House Oversight and Government Reform Committee, Dec. 9, 2008.
Office of the Comptroller of the Currency, “Interpretive Letter #964,” May 2003, accessed at
http://www.occ.treas.gov/interp/may03/int964.pdf.
Public Law 102-550, Title XIII.
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