Posts Tagged ‘fannie mae’
|My Interpretation of the Events Causing the Housing Bust
Wednesday, January 27th, 2010
The Community Reinvestment Act was passed by Congress in 1977 to encourage bankers to lend to people who were acknowledged poor credit risks due to low incomes. Banks needed cash to lend since these borrowers increased the demand for cash from banks. Bankers normally lend money held in savings accounts and CD’s, etc. In order for banks to make the high risk loans they needed both cash and some kind of guarantee to minimize the risks.
The government agencies Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) were created to insure the mortgages in the event of default and provide cash to community banks. The cash was obtained by grouping residential mortgages into bundles and selling the bundles to Wall Street investment houses where institutional investors and very wealthy people have their money. They too needed a guarantee against default on the mortgages so FNMA and FHLMC provided the guarantee.
A key issue was where to get more cash as the number of borrowers increased over the years after 1977. In 1933 because of “The Great Depression” Wall St investment houses were prohibited from accepting too many risks and entering too many markets by The Glass-Steagall Act.
The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company. The Gramm-Leach-Bliley Act, passed in 1999, allowed commercial banks, investment banks, securities firms and insurance companies to consolidate. This made larger quantities of money available to buy the packages of residential mortgages.
As the quantity of high risk mortgages grew naturally the exposure to risk of default grew. Well it started hitting critical mass when too many mortgagors stopped paying.
The current crisis is rooted in the poor performance of mortgage loans made between 2005 and 2007. Here is a source if you want more detail:
- Did the CRA cause the mortgage market meltdown? -
An aggravating factor was speculation. Because the demand had been pushed up for houses, the prices were pushed up. So speculators bought houses believing the prices would go up and they could sell them at huge profits. Some made huge profits. Those that owned houses at the bust lost.
So the whole thing occurred over a couple decades. It was not necessarily a bad idea. It was thought that the pride of ownership would improve peoples lives and their self -respect. They would have an investment in their own home instead of paying money to landlords forever.
When so many mortgages defaulted that Fannie Mae and Freddie Mac couldn’t cover the losses the government had to step in with huge amounts of money to lend to them to keep Fannie Mae and Freddie Mac along with Wall St investment houses from going into bankruptcy. Where did the Federal Government get the money? It borrowed it with a plan for the taxpayers (you) to pay it back over future years by increased taxes.
[I deliberately tried to keep this short and simple. You can read more by clicking on the links or doing internet searches.]
Tags: Congress, Election 2010, fannie mae, Houston, Houston Voters, Mortgage Crisis, Taxes
Posted in Uncategorized | No Comments »
America Rising: An Open Letter to Democrat Politicians
Wednesday, January 6th, 2010
Tags: Barack Obama, Congress, economy, Election 2010, Energy Policy, Environmental Issues, fannie mae, First Amendment Rights, Foreign Policy, freddie mac, government control, Houston Voters, Illegal Immigration, national healthcare, National Security, Public Education, socialism, Taxes, Texas 18th Congressional District
Posted in Uncategorized | No Comments »
Do You Know Your Current Congressional Representative
Monday, November 16th, 2009
56 Sponsored Bills (Ranks 2 of 440) 0 Made Into Law -
Do you want to! Or would you prefer someone who addresses the country’s pressing issues that you hear about and see on TV everyday. I can think of a few: Afghanistan War, Iraq War, Terrorism, Energy Policy, Environmental Issues, Foreign Policy, Fannie Mae, Freddie Mac, Jobs, Economy, Recession, 1st Amendment Rights, Illegal Immigration, Mortgage Crisis. Seems as though she avoids the issues.
Tags: Energy Policy, Environmental Issues, fannie mae, Foreign Policy, freddie mac
Posted in Houston, National Issues, Sheila Jackson Lee, Stop Sheila, The U.S. Government | No Comments »
American Banking Failures, The Mortgage Crisis & Our Politicians Who Looked The Other Way – Who Failed Us?
Monday, September 22nd, 2008
We Americans are asking ourselves; Who failed us?:
- Our major old long time banking establishments are failing
- The Mortgage Crisis continues to escalate with 100s of thousands of families losing their homes
- Oil surged $25 dollars/barrel today before dropping back to a record $16.37 increase in one day, today, exacerbating current financial market instability while guaranteeing future rises in inflation
- Unemployment is rising at a high rate, much higher than what’s being reported because the American unemployed worker is no longer counted when they fall off the unemployment compensation rolls within a few short months, having regained employment or not
- Politicians are raising campaign funds valued at multiples of 10 times to thousands of times what the job pays. Doesn’t anyone ask why those “public service” jobs are perceived to be that valuable?
- We are looking at a $750 Billion taxpayer bailout which will increase our national debt from $10.5T to $11.3T with subsequent devaluation of the Dollar and almost certain inflation consequences
- 11 Banks have already failed this year and the FDIC has 117 more on the “Watch List” as troubled banks. That list alone has the potential to bankrupt the FDIC. What happens then? I believe we already know… They come back to the taxpayer and ask for more.
The worst potential offenders are listed in order of largest total contributions with:
- Barack Obama coming in second place with $126,349
- Harry Reid in 11th place with $77,000
- Hillary Clinton placed 12th with $76,050
- Nancy Pelosi made the top 20 at 18th place with $56,250
- Barney Frank in 26th place with $42,350
The list goes on and on with Democrats comprising the majority of the 354 lawmakers taking funds from Freddie Mac & Fannie Mae (taxpayers now). Here’s the taxpayer burden breakdown:
- 209 Democrats (59%)
- 143 Republicans (40%)
- 2 Independents
Houston – Let’s make sure and not forget Sheila Jackson Lee and her $8,000 in Freddie Mac & Fannie Mae contributions when placing blame.
We certainly didn’t see any legislation introduced by her to help stem the fleecing of the 2 American Institutions set up to help guarantee affordable housing to low and middle income Americans. She should have known better since a large percentage of her constituency fall within that umbrella.
We don’t just need a “Congressional Oversight Committee”, we also need a “Senate Oversight Committee”. Our system of “Checks & Balances” seems to have fallen prey to raw American greed. We need Sarah Palin to “Clean House” and the Senate. We need someone who will help revive flatlined political ethics in America.
We all need to take a hard look at this list provided by OpenSecrets.org and lay blame where it belongs, when we go to the polls this election year. From judges who legislate from the bench to an out-of-control Senate and the most “Do-Nothing-Congress” in the history of the US, American voters must take back control of our government this year.
Engineer2
You can help us send John Faulk to Congress today.
Tags: American Banking Failures, Banking Failures, Barack Obama, Corrupt Politicians, economy, fannie mae, Fannie Mae Contributions, Frank Barney, freddie mac, Freddie Mac Contributions, Harry Reid, Hillary Clinton, John McCain, Mortgage Crisis, Nancy Pelosi, Sheila Jackson Lee
Posted in Houston, John Faulk, National Issues, Sheila Jackson Lee, The U.S. Government, Voices of the 18th Congressional District | No Comments »
Sheila Jackson Lee took money from Fannie Mae, Freddie Mac and Lehman Bros!
Monday, September 22nd, 2008
Why was I not surprised? Sheila was just standing out there minding her own business and along comes Fannie Mae and Freddie Mac with $8,000.
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html
Sheila’s campaign donations from the now defunct Fannie Mae and Freddie Mac was all funneled through individuals. I hope the money given to her did not cramp the style of the donors. I am a little surprised that she would have received twice as much as Al Green. Now taxpayers are being forced to bail these failed Democrat led organizations.
Sheila did not do as well with her “hometown” buddies, Lehman Brothers! She only picked up $400, the lowest amount given to any Texas member of Congress. Gene Green picked up more than Sheila.
Help me get elected so we can stop this madness!
John Faulk
You can help us send John Faulk to Congress today.
Tags: Al Green, economy, fannie mae, freddie mac, Gene Green, John Faulk, Lehman Brothers, Mortgage Crisis, Sheila Jackson Lee, Texas 18th Congressional District
Posted in Houston, John Faulk, National Issues, Sheila Jackson Lee | No Comments »
Another Government Flop
Tuesday, September 9th, 2008
Remember the Walter Reed Hospital scandals from earlier this year. Here is another example of big government management gone awry. Go here Serious Reform Needed at Walter Reed
I haven’t heard or read if the reforms have been argued over, agreed to or implemented but now we also have Fannie Mae (Federal National Mortgage Association). When a regular person buys a home with mortgage financing, the lender has a lot of continuing paperwork to do. I say continuing because until that mortgage is paid off the lender has to receive the payments, sometimes bill for them, record the payments and deposit them. When you think of a neighbohood, community, state and a country, that’s a lot of small mortgages. The lender gets the funds from investors. Big money investors like mortgages because the interest rates are higher than on other forms of investment. Yes, there is risk with mortgages but there is risk with every type of investment. The interest rates on mortgages are higher to make them attractive because of the risks. Even in the best of times some people default on their mortgage payments due to job layoffs, gambling and drug addictions, etc., normal human things.
The big money investor (someone investing billions) doesn’t want the hassle of dealing with individual borrowers so they buy packages of mortgages from the original lenders through a middleman. The big money investor has no idea who owes the money. Why would he hold mortgages based on faith alone? He doesn’t. Federal agencies (Fannie Mae and others) gather up the mortgages and sell them to the big money people in large dollar chunks along with some guarantees. Any time money is around someone is going to try to divert some to his pocket. That’s what happened here along with good intentions gone awry.
Some executives in the agencies arranged to get large bonuses even though the agencies performance did not warrant rewards for a job well done. Some small businesses do the same thing. A person talks people into investing in his company. Pays himself a large salary and the poorly operated, non-competitive company goes bankrupt.
The answer is oversight. Who better to provide oversight than the lenders with money at risk. Not the Government.
Franklin Raines
Franklin Delano Raines (born January 14, 1949 in Seattle, Washington) is the former chairman and chief executive officer of Fannie Mae who served as White House budget director under President Bill Clinton.
The son of a Seattle janitor [1], Raines graduated from Harvard University, Harvard Law School; and Magdalen College, Oxford University as a Rhodes Scholar. He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979. Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner. In 1991 he became Fannie’s Mae’s Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998. In 1999, he returned to Fannie Mae as CEO, “the first black man to head a Fortune 500 company.”[1]
On December 21, 2004 Raines accepted what he called “early retirement” [2] from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses [3].
In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $50 million in payments made to Raines based on the overstated earnings [4] initially estimated to be $9 billion but have been announced as 6.3 billion.[2].
Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused.[5] On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie’s former chief financial officer, and Leanne G. Spencer, Fannie’s former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie’s insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of “other benefits” said to be related to his pension and foregone bonuses.[6]
An editorial in The Wall Street Journal called it a “paltry settlement” which allowed Raines and the other two executives to “keep the bulk of their riches.” [7] In 2003 alone, Raines’s compensation was over $20 million.[3]
Cuomo 1990’s community lending
“At a news conference, Housing Secretary Andrew Cuomo and Fannie Chairman Franklin Raines bragged that home ownership in the African American community has never been higher, and Raines took the opportunity to slap the Washington Post for a recent news story suggesting Fannie does little to support minority buyers.”
What About “Redlining”?
”To refuse home mortgages or home insurance to areas or neighborhoods deemed poor financial risks. So, in the 1990’s Housing Secretary Cuomo and Franklin Raines emphasized increasing loans to neighborhoods formerly redlined.”
A good thing? To those living in those neighborhoods who pay their debts, yes, a good thing. To those who don’t pay their debts not a good thing. So the answer might have been selective redlining. However, the result was a major increase in loans to people who had no intention or discipline to repay their loans. Well those loans are being written off today and you the taxpayer are reimbursing the big money lenders, because the government agencies were managed poorly.
My first encounter with redlining, many years ago was in a health insurance company. A policyholder had a lot of health claims and the insurance company was losing a considerable sum of money on her policy. They marked her policy so that if she ever failed to pay her premium they would cancel the policy for non-payment of premium. Evil and unethical, I don’t know. I agreed with both sides.
Anyhow that’s how we got where we are and that’s why Fannie Mae is being taken over by the federal government and you will pay for the losses. The only source of money the federal government has is you.
You can help us send John Faulk to Congress today.
Tags: economy, fannie mae, Federal National Mortgage Association, government oversight, Mortgage Crisis, scandals
Posted in Houston, National Issues, Sheila Jackson Lee, The U.S. Government, Voices of the 18th Congressional District | No Comments »
Today’s Pressing American Financial Headlines (08-07-08) – Where is Congress?
Thursday, August 7th, 2008
Today’s Pressing Financial Headlines (08-07-08) – Where is Congress?
- AIG Posts Huge 2Q Loss, Shares Plunge – AP
- Citigroup Returning Billions to Investors – AP
- People Seeking Jobless Benefits Hit 6-year High – AP
- Economic Slowdown Just Getting Started, Says Credit Crisis ‘Prophet’- Tech Ticker
Where is Congress? Maybe they don’t believe the America Economy is in “full tilt mode”. Maybe they don’t understand that the housing market isn’t expected to recover in the next several quarters. Maybe they haven’t taken a close look at Freddie Mac’s and Fannie Mae’s books lately. Maybe they just plan to let the taxpayers bail them out! Maybe they don’t even know that taxpayers are bled dry. Maybe they aren’t even concerned about city and state municipalities going bankrupt for lack of property tax revenue.
Where is Congress? The Democrat led Congress just took a 5 week vacation right smack in the middle of a dismal 2nd Quarter financial reporting period where they should have stayed behind on the job supporting their constituency and the Republican Congressional members who chose to stay at work trying to help the nation.
Republicans Protest Congressional Vacation as Gas Prices Soar
ABC News’ Dean Norland Reports: “House Republicans, who insist that Speaker Nancy Pelosi call the House back from its summer recess so votes can be taken on their energy legislation, continued for a third day to make speeches to GOP staff members and Capitol Hill tourists.”
They did so in the dimly-lit chamber of the House of Representatives, without the aid of working television cameras or a public address system.The Republicans became miffed last Friday when Democrats abruptly adjourned the House until September 8 without giving them a chance to speak on the floor about their energy plan, which includes exploring for oil in ANWR and more off-shore drilling.
Even though the House had officially gone out of session, some Republicans stayed on the floor and made speeches anyway.
After taking the weekend off, the guerrilla oratory continued Monday, with organizers of the talk-in estimating that 24 of the 199 House Republicans participated.
At a news conference Tuesday before marching into the House chamber to begin their third day of protest, the GOP dissidents took some credit for the recent drop in the price of oil.
“Markets respond. The market is responding to the fact that we’re here talking,” said Rep. John Shadegg, R-Ariz.
Nine Republicans were present at the news conference. Two of them held a sign asking: “NANCY PELOSI – WE’RE HERE, WHERE ARE YOU?”
You can read the rest of the story here: Republicans Protest Congressional Vacation as Gas Prices Soar
Believe me the markets didn’t respond well to the continuing bad econimic news today on AIG, Citigroup and the Nation’s worsening job news (ref links above):
“Wall Street retreated Thursday (08/07/08) after weekly unemployment claims jumped to a six-year high and Wal-Mart Stores Inc. and other retailers reported disappointing sales, touching off renewed fears that a pullback in consumer spending will damage the economy.”
The Pelosi led Democrat Congress just doesn’t seem get it, or maybe they are more interested in electing a Democrat for president, that they have lost sight of their purpose and their constituents!
Engineer2
Tags: american congress, democrat congress, economy, Energy Policy, fannie mae, freddie mack, Mortgage Crisis, National Security, Pelosi
Posted in National Issues, The U.S. Government, Voices of the 18th Congressional District | No Comments »
