A trip down Fannie Mae Lane with Franklin Raines and Chris Dodd
Posted by danishova on March 17, 2009
What with all this manufactured outrage over a total of $165 million in bonuses going to 5600 A.I. G. employees , it’s a good time to recall why we are where we are today, beginning with a 1999 N.Y.T. story, and ending with an excellent contribution from John Steele Gordon at the Times Freakanomics blog.
Ready, set, go:
September 30, 1999
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”
The warning shot not heard round the world:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
You get loans with a little help from your friends:
Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
And so it goes, ad nauseum, until we get to this finale:
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
That’s right – a minority of the population (Hispanics, Blacks & Asians combined) representing 34% of the population were getting nearly half the loans, but that still wasn’t good enough.
As for Franklin Raines, he walked away from Fannie Mae with $90 million dollars* after “cooking the books” to fatten up his compensation. Yep, he alone received an amount equal to more than half what 5,600 employees of A.I.G. will get, as part of a deal disclosed a year ago. But Raines was not alone, as this more recent Times article piece reminds us:
Franklin Raines, Fannie C.E.O. from 1999 to 2004, had been budget director in the Clinton White House. He cooked the books at Fannie to increase his compensation (more than $50 million). Jamie Gorelick, vice C.E.O., was number two at the Clinton Justice Department before going to Fannie Mae. She made $26 million. Jim Johnson, a perennial Washington big-foot, was chairman from 1991 to 1998. He too, according to an official government report, cooked the books to increase his compensation and failed to publicly reveal how much he received.
Oh, and then there’s this:
Why were Fannie and Freddie so successful at maintaining the status quo? Check it out.
Senator Chris Dodd — formerly ranking member and now chairman of the Senate Banking Committee, with oversight over Freddie and Fannie — recently said on Bloomberg Television: “I have a lot of questions about where was the administration over the last eight years.”
Excuse me? Just where the hell were you, Senator? Oh, right. You were standing in line at the bank in order to deposit the political contributions Fannie and Freddie were lavishing upon you. At least they got their money’s worth — until the party ended and the American people got the bill.
Yep, and now Corruptocrat Chris Dodd is braying like a donkey about the bonuses for A.I.G. – the very same Chris Dodd who inserted language into the ‘stimulus bill’ which explicitly exempted the very people he’s pretending to be hysterical about now.
Update: Ed Morrissey of Hot Air weighs in nicely on the “Populist pap” feeding faux-outrage at A.I.G. here.
*Correction: Franklin Raines earned $91 million in 7 years, of which $52.6 million was in “bonuses”. He later paid back $24.7 million as part of a settlement with OFHEO, which, in my humble opinion, should have included time in the pokey.