Citation For mschaffer Posting in the Las Vegas Sun

The following is posted for the benefit of mschaffer, a poster to a letter-to-the-editor in the Las Vegas Sun.
This is an excerpt from his post:
"Your claim of lenders being forced to lend to high risk borrowers needs citations as others claiming this have been found to be poorly informed by conservative propaganda."

1990's

Initially the GSEs (government sponsored enterprises) resisted purchasing these risky mortgages but eventually the Clinton Administration instructed (para.3) them to substantially increase the percentage of these mortgages in their portfolios.

October 1992

Congress, enacting the Federal Housing Enterprises Financial Safety and Soundness Act (para.12)of 1992, allowed legislation to "amend and extend certain laws relating to housing and community development." It also "established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas."

November 1994

President Clinton addresses homeownership (para.4): "I think we all agree that more Americans should own their own homes...I am committed to a new and unprecedented partnership between industry leaders and community lenders and Government to recommit our Nation to the idea of homeownership and to create more homeowners than ever before."

June 1995

The administration announced (para.24) the bold new homeownership strategy which included monumental loosening of credit standards and imposition of subprime lending quotas.

May 1999

The LA Times reports that African Americans homeownership is increasing three times as fast as that of whites, with Latino homeowners is growing five times as fast, attributing to the growth to breathing "the first real life into enforcement of the Community Reinvestment Act." This breath of "life" mandated that Fannie Mae and Freddie Mac buy mortgages with deviant down-payments and debt-to-income rations which allowed lenders to approve mortgages for lower-income families that would have been denied otherwise.

September 1999

With pressure from the Clinton Administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans. Raines explained that "there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market," reported the New York Times (para.5).

...warned Peter Wallison. "If they (Fannie & Freddie) fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry" (para.8).
(According to Wallison's bio on Wikipedia, "1999-present American Enterprise Institute, codirector of AEI's financial markets deregulation project." I used Wiki simply to provide a broad stroke to describe him)

March 2000

Rep. Richard Baker (R-Louisiana) proposed a bill to reform Fannie and Freddie's oversight in a House Subcommittee on Capital Markets. Rep. Frank (D-Massachusetts) dismissed the idea, saying concerns about the two were "overblown" and that there was "no federal liability there whatsoever." (para.4)

June 2000

Fred L. Smith Jr., writing in Investor's Business Daily (para.4), recalls testifying before the House Financial Services Committee that GSE "special privileges create a serious hazard to the market, to taxpayers [and] to the economy." These new debt portfolios "will certainly increase the likelihood of a Fannie-Freddie default."

April 2001

Fiscal Year 2002 Budget (p142, 'Uncertainties') declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity," says a White House release.

February 2003

OFHEO (Office of Federal Housing Enterprise Oversight) reports that "although investors perceive an implicit Federal guarantee of [GSE] obligations...the government has provided no explicit legal backing for them," warning that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market, according to a White House release. (p.5, para.2)

June 2003

Freddie Mac reported it had understated it's profits by $6.9 billion. OFHEO director Armando Falcon Jr. requested that the White House audit Fannie Mae.

September 2003

Rep. Barney Frank (D-Massachusetts): "I do not think we are facing any kind of crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis...I do not think at this point there is a problem with a threat to the Treasury...I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.

October 2003

Fannie Mae discloses $1.2 billion accounting error.

November 2003

Council of the Economic Advisers Chairman Greg Mankiw warned (p.7), "The enormous size of the mortgage-backed securities market means that any problems at the GSEs matter of the financial system as a whole. This risk is a systemic issue also because the debt obligations of the housing GSEs are widely held by other financial institutions. The importance of GSE debt in the portfolios of other financial entities means that even a small mistake in GSE risk management could have ripple effects throughout the financial system,' from a White House release.

October 2004

In a subcommittee testimony, Democrats vehemently reject regulation of Fannie Mae in the face of dire warning of a Fannie Mae oversight report.

Rep. Barney Frank (D-Massachusetts)(p.10): "Uh, I, this, you, you, you seem to me saying, 'Well, these are in areas which could raise safety and soundness problems.' I don't see anything in your report at raises safety and soundness problems."

Rep. Barney Frank (D-Massachusetts)(p.10): "But I have seen nothing in here that suggest that the safety and soundness are at issue, and I think it serves us badly to raise safety and soundness as king of a general shibboleth when it does not seem to me to be an issue."

Rep. Christopher Shays (R-Connecticut) (p.182): "And you have about 3% of your portfolio set aside. If a bank gets below 4%, they are in deep trouble. So, I just want you to explain to me why I shouldn't be satisfied with 3%?"

Franklin Raines, Fannie Mae CEO (p.182): "These assets are so riskless that their capital for holding them should be under 2%."