Tuesday, September 16, 2014

A history lesson on FANNIE MAE

nice little FNMA synopsis from political hotwire msg board

Fannie Mae was created in 1938, and prior to the Affordable Lending iniative they recieved in the 90s, they purchased, sold or held Mortgages from FHA approved Lenders as a way to provide liquidity in the Mortgage Market.

What does THAT have to do with Clintons Affordable Lending initiative ?

In the 90s, the GSEs were given a Affordable Lending directive.

In 1993, James Johnson ( Fannie Mae Executive and prominent Democrat ) committed the GSEs to 1 Trillion dollars in Subprime purchases. 

(James A. Johnson (born December 24, 1943) is a United States Democratic Party political figure, and the former CEO of Fannie Mae. He was the campaign manager for Walter Mondale's failed 1984 presidential bid and chaired the vice presidential selection committee for the presidential campaign of John Kerry. He briefly led the vice-presidential selection process for the 2008 Democratic presidential nominee, Senator Barack Obama.)

They were to increase their purchase of CRA loans and were given a initial quota of 30 percent.

Thats 30 percent of all their loan purchases had to be CRA qualified loans.

Clinton Fannie Mae Vice Chair Appointee Jamie Gorelick 

(Even though she had no previous training nor experience in finance, Gorelick was appointed Vice Chairman of Federal National Mortgage Association (Fannie Mae) from 1997 to 2003. She served alongside former Clinton Administration official Franklin Raines.[6] During that period, Fannie Mae developed a $10 billion accounting scandal)

defined CRA loans as loans that were made with up to a 3 percent down payment and were also made with " flexible underwriting techniques ".

In 1995, their standards were lowered even further and their Quota for the purchase of CRA loans was raised to 40 percent.

Their Capital requirement for loans they purchased was also lowered to 3 percent and their automated underwriting process was changed to help them meet their HUD mandated Housing Goals.

In 2000, Andrew Cuomo was Clinton's HUD Secretary.

(During Cuomo's tenure as HUD Secretary, he called for an increase in home ownership.[10] He also pushed government-sponsored lenders Fannie Mae and Freddie Mac to buy more home loans issued to poor homeowners, in an attempt to end discrimination against minorities.[11] Some believe that this helped lead to the current subprime mortgage crisis.[6][10][12] Edward J. Pinto, former chief credit officer at Fannie Mae, said "they should have known the risks were large. Cuomo was pushing mortgage bankers to make loans and basically saying you have to offer a loan to everybody.)

He committed the GSEs to 2.4 Trillion dollars in Subprime purchases and raised their HUD affordable lending quota to 50 percent

Thats 50 percent of every loan they purchased had to be from low income borrowers or borrowers with poor credit history and income verification.

Prior to the 1990s affordable lending initiative the GSEs never purchased more than 10 percent in Subprime loans.

In 2004, the SEC opened up its investigation into the unprecedented corruption at Fannie Mae.

(Finally, in late 2012, U.S. District Court Judge Richard Leon dismissed the cases against all three. He ruled that there was zero credible evidence to suggest that Howard, Raines or Spencer had ever intended to deceive anyone. He also ruled that the charge of improper earnings manipulation, which was the basis of an earlier SEC lawsuit alleging securities fraud, was not supported by evidence.)

In 2006, Fannie Mae was fined 400 thousand dollars

Two years later, Fannie Mae and Freddie Mac were declared insolvent holding over 5 Trillion dollars in Mortgages. That were worth money. Not just debt.

They were also holding enough cash and did not need Nationalized other than to become the bad bank for the failed PLS private label security market. 

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