The housing bust, de ja vu

The housing market collapsed in 2008.  Depending upon your political persuasion, we either got there because of greedy bankers, or because the federal government (i.e., Fannie Mae and Freddie Mac) lowered credit standards.  Apparently, your government is urging a repeat performance.

In a 26-page paper sent to top lawmakers on congressional banking committees, the Fed warned that tight mortgage- lending standards threaten to hold back the economy.  [emphasis supplied]

Yes, you read that correctly.

Of course, the Fed has nothing to do with the housing market.  But every measure the Fed has used within its power has done little to boost the economy.  So, apparently, this will be the new mantra.  I could probably write a doctoral thesis on why the policies of  neither the Fed, nor the administration have helped the economy, but, I will leave that for another day.

Here is what the Fed has to say about the current policies of Fannie and Freddie.

Some actions that cause greater losses to be sustained by the [companies] in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery. [emphasis supplied]

“Might” and “if”…don’t you just love it when the federal government makes policy decisions based upon those two proven theories. 

You, the taxpayer, have already thrown $151 billion at Fannie and Freddie to bail them out of the results of loans that they assumed, but should never have assumed due to the poor credit ratings of the borrowers.  So, Fannie and Freddie have tightened their credit standards, but the Fed wants them to now relax those standards again based solely upon “mights” and “ifs”.

The administration will claim that the Fed has lowered borrowing rates to near zero, but the banks are still not lending.  You need to understand why.

Many lenders are worried about being forced to buy back loans they sell to Fannie and Freddie if those mortgages later default.  [Fannie and Freddie]…have ramped up these so called put-backs to minimize the amount of taxpayer money the firms must borrow but it discourages new lending, the Fed paper said.

Distilled to its basics, here is what the Fed wants.  Banks, Fannie and Freddie  should once again lower their credit standards, but if any of those mortgages default,  Fannie and Freddie can dump those bad loans back on the banks. 

If you were a bank, would you take the risk of lowering your credit standards given the inevitable outcome? 

Understand, though, this is an election year, and the President has little in the way of accomplishments to point to.  Legal or not, he will do something in the housing market.  The only question is what.


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The Sound Off Sister was an Assistant United States Attorney for the Southern District of Florida, and special trial attorney for the Department of Justice, Criminal Division; a partner in the Florida law firm of Shutts & Bowen, and an adjunct professor at the University of Miami, School of Law. The Sound Off Sister offers frequent commentary concerning legislation making its way through Congress, including the health reform legislation passed in early 2010.


  1. ricbee on January 5, 2012 at 11:25 pm

    Would you expect the most kind-hearted banker in the world to not take advantage of the no-lose proposal of Fanny & Freddy? They couldn’t lose so sent it all in. Until Fanny & Freddy are unloaded by the Government the housing market will rest on the horns of a dilemma.

  2. JBS on January 6, 2012 at 6:49 am

    Bingo, ricbee. The problem is that the government has gotten to deeply into the business of the lending banks. Bankers are continuously watching what Freddy and Fannie are going to do. Somehow, those two “institutions” have to be eliminated, if not in reality, then in the magnitude of their influence on the housing market.
    If I were a banker would I lower my standards for borrowers? No. However, I would adhere to every and all federal guideline and regulation governing borrowing for home loans. Precisely what got us into this mess. The problem is the government micromanaging everything in the name of, what, equality? Level playing field? Equal opportunity? Socialism run amuck! And, were paying for it.
    Why do I hear the specters of Dodd and Frank laughing?

  3. Dimsdale on January 6, 2012 at 1:48 pm

    Social engineering through manipulation of mortgage standards is what really got us into this mess in the first place.? The banks should take the risk of government action for maintaining banking standards.? If they are applying them equally, then they are defensible, and the gov’t doesn’t have a leg to stand on.?? Not that this would stop them from “applying leverage” from some other angle.

  4. Lynn on January 6, 2012 at 3:59 pm

    “Legal or not, he will do something in the housing market. The only question is what.”? My answer, Make a bubble, let it grow until it bursts, then we are left yet again, with only his hot air.

  5. sammy22 on January 6, 2012 at 5:09 pm

    Do I hear from the above that the banking industry and Wall Street gets a pass on the mortgage debacle?

    • Lynn on January 7, 2012 at 9:45 am

      Do Dodd and Franks get a pass for dismissing the warning that Freddie MAc and Fannie Mae were insolvent?

  6. sammy22 on January 7, 2012 at 11:24 am

    No, they don’t Lynn. Now, does the banking industry and Wall Street gets a pass on the mortgage debacle?

  7. Lynn on January 7, 2012 at 2:32 pm

    Yes, the small banks get a pass because they were forced to give unsustainable mortgages? to meet government quotas and regs. Also it was a BIG mistake to deregulate and break down the separation between banks and investment firms, it allowed for mucho tricky risks. As for the big banks and unscrupulous Wall Street moguls (mostly those who gave huge campaign donations to Obama) they get NO PASS from me. guilty as charged. Greed is NOT Good, when it destroys others.

  8. Lynn on January 7, 2012 at 3:01 pm

    BTW, the greediest of them all is Franklin D. Raines, who became chairman and CEO of Fannie Mae on January 1, 1999.
    Big Banks and Mortgage insurance co. created FMWatch to watch Fannie and Freddie because of “mission creep” subprime Mort. lending. Raines remarked, “…if you harass Fannie Mae, maybe they’ll pull their punches, ….but anybody that knows me knows that would be a very large tactical error.” In 2003, CBO and critics warned that Fannie had taken on a dangerous level of risk, the rest is history. Meanwhile F.D. Raines is safely ensconced as one of President Obama’s Campaign Directors. Read it and weep.

  9. sammy22 on January 7, 2012 at 3:54 pm

    Lynn, you could have left it w/o the political finger pointing.

    • Dimsdale on January 7, 2012 at 6:52 pm

      No, she couldn’t.? Fannie and Freddy were controlled and, more importantly, protected and defended by Democrats.? That is especially important in light of the Community Reinvestment Act.

    • Lynn on January 7, 2012 at 10:19 pm

      Sammy, It is paramount for people to understand what happened, the other articles I could have used for links go on to say how the spin by President Obama and his cult was immediately put out that the mortgage debacle was all because of Republican greed.? One year ago, I was able to get a link to a letter Frank Raines wrote to the N Y Times in 1999, predicting the debacle. I could not find that letter today and I looked everywhere. It is so easy now to just rewrite history.? Frank Raines is a brilliant guy and it is even worse that he knew what was going to happen and he took full advantage of it and made millions off it. Now he is protected from prosecution because President Obama has the clout. How very sad. Occupy Wall Street could have occupied Fannie and Freddie or Washington DC and been more accurate. Maybe, maybe you will look a little deeper, Sammy and that’s all I ask!

  10. sammy22 on January 7, 2012 at 11:33 pm

    Since you like finger pointing take a read at this:
    BTW, how did things go in the Iowa caucuses for Newt? What’s happening in N.H.?

  11. sammy22 on January 7, 2012 at 11:39 pm

    Or Google: Newt and Freddy Mac

  12. Lynn on January 8, 2012 at 8:52 am

    Tried your link, said article was unavailable. I did what instructions said hit back button and then I was supposed to hit HOME but it brought me here. I will try Googling but that will give me a list of articles, I can damn sure tell you that there will be articles about same thing and they will be diametrically opposed.

  13. Lynn on January 8, 2012 at 9:21 am

    Just as I foretold, Ha I should be a fortuneteller….. I found this link from Bloomberg first on list when I googled
    Answered my questions. Gringrich’s Consultant firm received $1.6 – $1.8 million over 8 years which works out to $17,000 per month pretty much market price. THE FIRM received that and typically there is overhead.? I also read the last link which was? Dick Morris, who said Gringrich himself admitted he did a disservice to himself by not explaining that he warned Freddie Mac that their practices were disceptive. I disregarded the spin articles just as I did, when I posted the link about FDR. If you will note that is an encyclopedia article. You can’t get anymore in-the-middle than that. Unfortunately this google did not give too many middle of the road they were MOSTLY all SPIN. But Bloomberg is LEFT of most GOP and Dick Morris is all over the road. But I have verified the comments from numerous sources that are not on Google. Also my link talks about Freddie Mac as well. I’m still for Newt but ABO.? Have a bright sun shiny day!

  14. sammy22 on January 8, 2012 at 1:55 pm

    Glad to hear that when it comes to Newt and Freddy it’s all spin, or pocket change for payments or….or….

    • Lynn on January 8, 2012 at 5:24 pm

      Or consulting by telling Freddie they were abusing the mortgage system…. No one knows what he recommended now do they?

    • Dimsdale on January 8, 2012 at 9:05 pm

      I wonder: did Newt control or run Freddie Mac?? Or did he simply profit from it?? Raines ran it, Dodd and Frank defended and profited from it.? And Gorelick and others.? Did Newt support/write or otherwise defend the Community Reinvestment Act?? Nothing I can find supports that.
      You point fingers where they need to be pointed, not as a distraction, which aiming at Newt truly is.

    • NH-Jim on January 13, 2012 at 1:18 pm

      And Janet Reno threatened all who did not fall into order under Franks, Dodd, and Clinton.
      Many times during Bush’s term, Alan Greenspan testified before Congress to WARN of a crash (NYT 2/2004) in the mortgage industry if nothing is done.? Nothing happened except for a crash and the fleecing of American taxpayers.
      And, while we are finger-pointing, let’s not forget Rahm Emanuel.
      <a title="Fannie Mae Eases Credit" href=";…

  15. Tim-in-Alabama on January 8, 2012 at 9:15 pm

    Stop all this finger pointing when Democrats are to blame!

  16. JBS on January 9, 2012 at 10:16 am

    All of this begs the question of the post: What will Obama do with or to the housing market this election year?
    Will he sign an executive order to “forgive” loans? Reduce interest rates on loans? Allow underwater and delinquent homeowners to refinance at the current value of their home under current rates — at government expense?
    The W.H. tried an end-0f-the-week adjustment to mortgages insured by the government, but had to rescind their trial balloon because of public outcry.
    Obama is going to have to be careful which strategy he picks. Even Dems are weary of his tinkering with the economy.

  17. sammy22 on January 9, 2012 at 11:40 am

    My point was simple: Repubs, Dems and Indep blew it. They ALL share the blame. Lynn, Dims and Co. are falling all over themselves to “defend” the Repubs by pointing fingers at the Dems exclusively.

    • Dimsdale on January 9, 2012 at 11:09 pm

      I don’t dispute that to a degree, but I think the Dems bear the bulk of this one.? You don’t have to “fall all over one’s self” to see videos of Barney Frank disputing that there was anything wrong with F&F, or to show how Dodd was in bed with Countrywide Mortgages.? Raines and Gorelick?? I would appreciate any analogous information on Republicans.? No doubt it exists, but you also have to take into account that Bush, for all his alleged incompetence, and McCain, did try to rein in this mess before it blew up.? It was the Dems that were covering up.
      You have to trip all over yourself to put too much blame on the Republicans, at least during the last decade.


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