Fannie Mae-No Politics (FNMA)

[955]

Common denominator throughout Wallison's dissenting statement, highlighted below, of the financial crisis, was bad GOVERNMENT HOUSING POLICY. Where is Wallison putting the blame on the GSE's??? Your statement, "He is not a pathological liar - he is however a habitual blame it all on F and F believer for years and years --- and years", doesn't fit the facts. Wallison squarely lays the blame on BAD GOV HOUSING POLICY. It is for this reason that he is under such fierce attack. What is your connection with the US Gov???


ALL QUOTES FROM Wallison Dissenting Statement in FCIC Report, http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

I believe that the sine qua non of the financial crisis was U.S. government housing policy, which led to the creation of 27 million subprime and other risky loans—half of all mortgages in the United States — which were ready to default as soon as the massive 1997-2007 housing bubble began to deflate. If the U.S. government had not chosen this policy path—fostering the growth of a bubble of unprecedented size and an equally unprecedented number of weak and high risk residential mortgages—the great financial crisis of 2008 would never have occurred.

Part III outlines in detail the housing policies of the U.S. government that were primarily responsible for the fact that approximately one half of all U.S. mortgages in 2007 were subprime or otherwise of low quality.

Although there were many contributing factors, the housing bubble of 1997-2007 would not have reached its dizzying heights or lasted as long, nor would the financial crisis of 2008 have ensued, but for the role played by the housing policies of the United States government over the course of two administrations.

1. Government Policies Resulted in an
Unprecedented Number of Risky Mortgages
Three specific government programs were primarily responsible for the growth of subprime and Alt-A mortgages in the U.S. economy between 1992 and 2008, and for the decline in mortgage underwriting standards that ensued.
The GSEs’ Affordable Housing Mission....(the GSE Act)
The Community Reinvestment Act.
HUD’s Best Practices Initiative.

In this light, it appears that Congress set out deliberately in the GSE Act not only to change the culture of the GSEs, but also to set up a mechanism that would reduce traditional underwriting standards over time, so that home ownership would be more accessible to LMI borrowers.

By 2008, the result of these government programs was an unprecedented number of subprime and other high risk mortgages in the U.S. financial system.

The fact that the credit risk of two-thirds of all the NTMs (Non-Traditional Mortgages) in the financial system was held by the government or by entities acting under government control demonstrates the central role of the government’s policies in the development of the 1997-2007 housing bubble, the mortgage meltdown that occurred when the bubble deflated, and the financial crisis and recession that ensued.

To be sure, the government’s efforts to increase home ownership through the AH goals succeeded. Home ownership rates in the U.S. increased from approximately 64 percent in 1994 (where it had been for 30 years) to over 69 percent in 2004. Almost everyone in and out of government was pleased with this—a long term goal of U.S. housing policy—until the true costs became clear with the collapse of the housing bubble in 2007. Then an elaborate process of shifting the blame began.

As discussed below, there is good reason to believe that the 1997-2007 bubble grew larger and extended longer in time than previous bubbles because of the government’s housing policies, which artificially increased the demand for housing by funneling more money into the housing market than would have been available if traditional lending standards had been maintained and the government had not promoted the growth of subprime lending.

Finally, the funds that the government directed into the housing market in pursuit of its social policies enlarged the housing bubble and extended it in time.

Government Actions Create a Panic

In the great financial panic of 2008, it is reasonably clear
that the remote cause was the build-up of NTMs in the financial system, primarily—as I have shown in this analysis—as a result of government housing policy. This unprecedented increase in weak and risky assets set the financial system up for a crisis of some kind. The event that turned a potential crisis into a full-fledged panic—the proximate cause of the panic—was also the government’s action: the
rescue of Bear Stearns in March 2008 and the subsequent failure to rescue Lehman Brothers six months later. In terms of its ultimate cost to the public, this was one of the great policy errors of all time, and the reasons for the misjudgments that led to it have not yet been fully explored.

This analysis lays the principal cause of the financial crisis squarely at the feet of the unprecedented number of NTMs that were brought into the U.S. financial markets by government housing policy.

Instead, these loans and the bubble to which they contributed were the direct consequence of something far more mundane: U.S. government housing policy, which—led by HUD over two administrations—deliberately reduced mortgage underwriting standards so that more people could buy homes.

Finger-pointing in Washington is endemic when problems occur, and agencies and individuals are constantly trying to find scapegoats for their own bad decisions, but HUD’s effort to blame Fannie and Freddie for the decline in underwriting standards sets a new standard for running from responsibility.

In an interview on Larry Kudlow’s CNBC television program in late August, Representative Barney Frank (D-Mass.)—the chair of the House Financial Services Committee and previously the strongest congressional advocate for affordable housing—conceded that he had erred: “I hope by next year we’ll have abolished Fannie and Freddie . . . it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.” He then added, “I had been too sanguine about Fannie and Freddie.”

Under the GSE Act, the HUD Secretary was authorized to establish affordable housing goals for Fannie and Freddie.

The Affordable Housing Goals were the Sole
Reason That the GSEs’ Acquired So Many NTMs

The use of the affordable housing goals to force a reduction in the GSEs’ underwriting standards was a major policy error committed by HUD in two successive administrations, and must be recognized as such if we are ever to understand what caused the financial crisis.

One of the important facts about HUD’s management of the AH goals was that it placed Fannie and Freddie in direct competition with FHA, an agency within HUD.

It is important to remember that 1999 is the year that HUD was planning a big step-up in the AH goals for the GSEs—from 42 percent LMI to 50 percent, with even larger percentage increases in the special affordable category that would be most competitive with FHA.

In 1994, HUD began a program to enlist other members of the mortgage financing community in the effort to reduce underwriting standards.

This dissenting statement argues that the U.S. government’s housing policies were the major contributor to the financial crisis of 2008.

Finally, if the principal cause of the financial crisis was ultimately the government’s involvement in the housing finance system, housing finance policy in the future should be adjusted accordingly.

ALL QUOTES FROM PETER J. WALLISON'S DISSENTING STATEMENT IN FCIC Report, http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

955

lets put that dissenting statement in context

expecting a balanced report from a DEM led group

The four Republican members of the commission signed onto this report that puts the blame on F and F

Then one by one all three fellow Republicans realized how nonsensical it was to believe this report and went with the consensus - lots of blame - majority report

Only Wallison was left to tell us what he found - given he knew his answer a year before the collapse

He is not a pathological liar - he is however a habitual blame it all on F and F believer for years and years --- and years