Investor's Business Daily posted an analysis piece yesterday on the roots of the current financial situation. A Congressional Report on the financial crisis has been released by Representative Darrell Issa of California, ranking Republican on the House Oversight and Government Reform Committee. The report details the government's role in politicizing housing. The article gives a short, pointed summary, here are some of the highlights:
• With an implicit subsidy to American homeowners in the form of reduced mortgage rates, Fannie Mae and its sister government sponsored enterprise, Freddie Mac, squeezed out their competition and cornered the secondary mortgage market. They took advantage of a $2.25 billion line of credit from the U.S. Treasury.
• Congress, by statute, allowed them to operate with much lower capital requirements than private-sector competitors. They "used their congressionally-granted advantages to leverage themselves in excess of 70-to-1."
• Encouraged by an inaccurate 1992 Boston Federal Reserve Bank study charging racial discrimination in mortgage lending, the two GSEs were strongly pressured to "lower their underwriting standards, particularly on the size of down payments and the credit quality of borrowers."
• In 1992, Congress directed HUD to establish multiple quotas requiring mortgage quotes for low-income families.
• In 1995, the Clinton administration issued a National Homeownership Strategy, loosening Fannie and Freddie's lending standards and insisting that lenders "work collaboratively to reduce homebuyer downpayment requirements."
• In 2006, Freddie paid the largest fine in Federal Election Commission history for improperly using corporate resources to hold 85 fundraisers for congressmen, raising a total of $1.7 million.
These are only some of the highlights. Please read the entire article to see how we got here. We need to take a look at which Congressmen backed these laws and make sure those Congressmen never get elected again!
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