Housing Crisis that Led to Our Nation's Financial Disaster Began With Barney Frank & Chris Dodd

By Nick Fortune

The housing crisis that led to our nation's financial disaster began with Barney Frank & Chris Dodd   House Banking Committee chairman Rep. Barney Frank said; "concern about Fannie and Freddie was "overblown." & Senate Banking Committee chairman Chris Dodd called a Bush proposal for an independent agency to regulate the two entities "ill-advised."   Apparently both Frank and Dodd allowed the pending disaster to continue.  After it was established that the process and the lack of oversight was a disaster, guess who was put in charge of trying to remedy the situation........? Barney Frank and Chris Dodd, the very one's who allowed the problem to get out of hand. NF 

In 2006 John McCain attempted to "rein in Fannie and Freddie. The Washington Post said "" Washington failed to rein in" the two government-sponsored entities, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), both of which ran into trouble by underwriting too many risky home mortgages to buyers who have been unable to repay them. The blame goes to the Democrats for blocking McCain's reforms; former President Clinton agreed that "the responsibility that the Democrats have" might lie in resisting his own efforts to "tighten up a little on Fannie Mae and Freddie Mac." We're then told that the crisis "didn't have to happen."

It's true that key Democrats opposed the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have established a single, independent regulatory body with jurisdiction over Fannie and Freddie – a move that the Government Accountability Office had recommended in a 2004 report. Current House Banking Committee chairman Rep. Barney Frank of Massachusetts opposed legislation to reorganize oversight in 2000 (when Clinton was still president), 2003 and 2004, saying of the 2000 legislation that concern about Fannie and Freddie was "overblown." Just last summer, Senate Banking Committee chairman Chris Dodd called a Bush proposal for an independent agency to regulate the two entities "ill-advised."

In the 1990’s, encouraged by the Clinton administration as a means of advancing minority homeownership, Fannie Mae and Freddie Mac started buying sub prime (special low interest) loans. Previously there was a much smaller market for sub prime mortgages, but with Fannie and Freddie buying the paper the availability of sub prime loans skyrocketed. With time-tested lending practices out the window, these two institutions ended up controlling 90% of the secondary market for mortgages. Those within the organizations who raised objections to the irresponsible lending being encouraged by Fannie and Freddie were overruled and eased out.

Fannie and Freddy began hiring Democratic operatives as CEO’s and upper management. At the same time, Fannie and Freddie began making huge contributors to Congress, spending millions to influence votes. While some Republicans also received financial contributions from the two institutions, most of the money went to Democrats. Top recipients of those campaign contributions were Barney Frank and Chris Dodd, the Chairmen of the Committees that should have been providing over site of the two financial giants. Barack Obama and Hillary Clinton were also among the top receipts of Fannie and Freddy campaign contributions. 

Wall Street investors liked the new arrangement and the easy money. Democrats liked the votes they could garner by being the party that advanced homeownership and they liked the dependable source of campaign contributions. This was the “crony capitalism” that led to the crisis.

By the early part of this decade it became clear that Fannie and Freddie were advancing a market in risky loans. If these practices continued an economic meltdown was inevitable. In 2004 Fannie Mae was caught in an accounting scandal overstating their earning and their financial stability. Congress conducted dozens of hearing and Democrats defended Fannie Mae and denied that a problem existed.

 (See video http://adisgruntledrepublican.blogspot.com/2008/12/who-to-blame-for-housing-crisis.html.)

Principled Republicans, let by John McCain, called for the reform of Fanny Mae and Freddy Mac and President Bush proposed a bill to tighten regulation of the institutions. (For a record of the Bush administrations efforts to rein in Fannie Mae see Just the Facts: The Administration's Unheeded Warnings About the Systemic Risk Posed by the GSEs)

The bill to tighten regulation over the Government Sponsored Enterprises (Fannie and Freddie) was introduced in Congress in January 2005 but Democrats blocked it. If one single person gets credit for blocking reform that could have averted the mortgage crisis it has to be Barney Frank. (See, Fannie Mae’s Patron Saint)

While there are other factors at play that led to the economic meltdown, the bulk of the blame must be laid at the feet of Congressional Democrats who turned a blind eye to what was going on, benefited from it, and blocked reform that could have averted it.

And now....... apparently not having created enough problems, giving loans to people who could not afford them, some having no assets and no jobs, and after pressuring the banks to give out these loans liberally or be considered racist...... Now they're going to try to stop or at least hinder banks from foreclosing on these mortgages. 

 (See video http://adisgruntledrepublican.blogspot.com/2008/12/who-to-blame-for-housing-crisis.html.)

U.S. lawmakers seek foreclosure investigations

JPMorgan Chase & Co.

 WASHINGTON (Reuters) - California Democrats in the U.S. House of Representatives are calling for federal investigations into whether financial institutions broke any laws in their handling of foreclosures in the midst of the U.S. housing crisis.   

Reports from thousands of homeowners in their congressional districts show an "apparent pattern" of practices that led to foreclosures that could have been avoided, the lawmakers wrote in an October 4 letter to U.S. Attorney General Eric Holder, Federal Reserve Chairman Ben Bernanke and the U.S. Treasury Department.

The letter was signed by House Speaker Nancy Pelosi and 30 California lawmakers.

"The excuses we have heard from financial institutions are simply not credible three years into this crisis. People in our districts are hurting," the letter said. "It is time that banks are held accountable for their practices that have left too many homeowners without real help."

The lawmakers said thousands of people have reported that despite efforts to seek loan modifications or other relief many financial institutions "routinely fail to respond in a timely manner, misplace requested documents, and send mixed signals" about what is required to avoid foreclosures.

At least six states are investigating the foreclosure procedures at Ally Financial Inc or JPMorgan Chase or both.

Ally, formerly known as GMAC, revealed last month that officials had signed thousands of affidavits supporting foreclosure proceedings without having personal knowledge of the borrowers' situations.

A seventh state, Texas, on Tuesday halted all foreclosures, sales of foreclosed properties and evictions from foreclosed properties until foreclosure practices are reviewed.

The bailout was a bust for most taxpayers

Oct 4, 2010 14:49 EDT

bailout | tarp | taxpayers

Was the bailout of the U.S. banking, auto and insurance industries worth it?

As the Troubled Assets Relief Program comes to a close, I won’t be popping any champagne corks. The Federal Reserve and U.S. taxpayers are still owed at least $2 trillion and at least two black holes remain in the bailout scenario. The conventional wisdom is that life as we knew it was preserved and a 1930s-style depression (or worse) was averted. Yet for millions of Americans, the bailout hasn’t helped them a bit. They are still punch drunk and often jobless from Wall Street’s and the bankers’ Las Vegas benders.

Former Goldman Sachs manager and author Nomi Prins tells me “Main Street is not better off, because it did not receive the lion’s share of the grandiose focus, subsidies, monies and removal of toxic asset aid that the banking sector inhaled into the top levels of their institutions.” Prins, who authored the definitive autopsy of the meltdown in “It Takes a Pillage,” challenges the idea that the bailout money ever trickled down to people who needed it the most.

 “That’s why defaults, delinquencies, foreclosures, bankruptcies and unemployment rates have risen — none of which is an indication of Americans doing better, even as banks repaid TARP and are eager to put the whole ‘mess’ behind them,” Prins said. You don’t have to look too deep into housing forecasts to see that the U.S. home market still resembles a typhoon-devastated country. The shadow inventory of homes that could be reverting back to lenders is staggering. There may be as many as “four to 12 million foreclosures yet to come” touching nearly every neighborhood in the country, according to real estate author Ilyce Glink.

One of the reasons the housing debacle seems like a bottomless pit is that the widespread unemployment triggered by the meltdown is pushing ever more homeowners into foreclosure. The American Dream is shattered for them.

While the stated jobless rate is hovering around nine percent, it’s really 12 percent to 20 percent when you include inner-city residents and those who have stopped looking for work and no longer receive unemployment checks.  Meanwhile, the two entities that were supposed to lend stability to the housing market and middle-class neighborhoods — Fannie Mae and Freddie Mac — are on life support.

Will the Obama Administration wind them down, buy their bad loans or simply privatize them? We probably won’t know until well after the November election. In the interim, Prins estimates that taxpayers are on the hook for a nearly $7 trillion implicit guarantee of the mortgage companies and their debts. Am I ignoring TARP’s silver lining? Financially, it wasn’t a complete bust and taxpayers made money on the funds repaid. The largest financial rescue in history has produced some dividends for the U.S. Treasury. Big banks, Wall Street, goliath insurer AIG, the mortgage market, GM and Chrysler all got loans and will survive — at least until the next crisis.

Fannie and Freddie became wards of the state and the world’s largest banks and insurers were saved from their rapacious derivatives trading.

The true measure of whether the $8 trillion pledged thus far on the total bailout was well spent, however, is gauged in lost opportunity cost and unaddressed social capital needs.

Could the financial rescue money have been better spent fixing some $2 trillion in dilapidated levees, bridges, water systems, dams, roads and schools?

Would we have been better off investing the TARP funds in alternative energy, our moribund public transportation infrastructure, curing cancer or providing world-class educations for children struggling to compete in a global economy?  It’s painful to say that the bailout create few if any new jobs except for a handful of bureaucrats counting the billions that went to a fortunate few.

Sen. Menendez raises foreclosure moratorium idea

JPMorgan Chase & Co.

WASHINGTON (Reuters) - An influential U.S. senator on Tuesday raised the prospect of an industry-wide moratorium on foreclosures as he pressed three banks accused of improperly kicking borrowers out of their homes to outline steps they are taking to fix their procedures.

"It is simply inexcusable that proper oversight proceedings were not in place, especially when dealing with matters as monumental as the seizure of a family's home," Senator Robert Menendez  Menendez, it was your party leaders who allowed it to happen  NF

"At least one credit rating agency, Fitch, states that it believes this problem is widespread among banks and servicers, which raises the question of whether other banks should impose a moratorium until this lack of oversight is corrected," wrote Menendez, the head of a Senate subcommittee on housing.

Lenders are scrambling to defend and improve their foreclosure procedures, under scrutiny in state courts and from regulators.

The issue came to the forefront last month when Ally revealed that officials had signed thousands of affidavits supporting such proceedings without having personal knowledge of the borrower's situation.

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year and just 100,000 as recently as 2005, real estate data company RealtyTrac Inc said last week.

At least six states are investigating the foreclosure procedures at Ally, JPMorgan Chase or both.

A seventh state, Texas, on Tuesday announced a halt to all foreclosures, sales of foreclosed properties and all evictions from foreclosed properties until foreclosure practices are reviewed.

Texas Attorney General Greg Abbott sent the halt notice to 30 loan servicers "to determine the full harm Texas homeowners may have suffered or could suffer as a result of these business practices."

Asked to respond to the foreclosure haltings, Treasury Spokesman Mark Paustenbach said: "Treasury encourages regulators of these institutions to carefully evaluate these latest developments."

Menendez and Minnesota Senator Al Franken called for congressional investigators to look into reports of misconduct in the foreclosure practices of the three firms.

"We are concerned that shortcomings in policies and procedures at these companies may have resulted in routine filings of false affidavits in foreclosure proceedings," they wrote to the head of the Government Accountability Office, the watchdog arm of Congress.

JPMorgan Chase has come under investigation in California and Connecticut. The bank had already announced it was delaying foreclosure proceedings.

Bank of America on Friday suspended some of its foreclosures in 23 states to review whether it has been conducting them properly.

U.S. mortgage servicers are already struggling to deal with the millions of homeowners unable to pay their mortgages, and the announcements by the three firms have raised concerns that process could grind to a halt.

Fannie, Freddie seek sweeping reviews of servicers

NEW YORK (Reuters) - Fannie Mae andFreddie Mac, the largest providers of funding for U.S. residential mortgages, on Friday said they are taking steps with their regulator to strengthen oversight of thousands of loan servicers. NOW? You want to close the barn door now that the horses escaped????

The moves to reinforce contractual obligations come afterGMAC Mortgage and the mortgage servicing unit of JPMorgan Chase& Co <JPM.N> have had to review how they handle foreclosures,in light of some employees saying they authorized the practiceswithout proper reviews.  GMAC, a unit of Ally Financial, has endured a firestorm ofcriticism in the past two weeks as its faulty practices came tolight. Its errors, and those of JPMorgan, have raised concernsof an industry-wide problem given the volume of foreclosuresplaguing the nation.

Bank of America Corp <BAC.N> on Friday said it is assessingexisting foreclosure processes and is delaying some to amendaffidavits in the 23 states where courts have jurisdiction. Fannie Mae and Freddie Mac asked their servicers to immediately undertake a review of policies and procedures asthey relate to affidavits. Freddie Mac placed an Oct. 18deadline for its 2,000 servicers to complete their reviews.  Fannie Mae underscored it has a variety of remedies,including charging fees to compensate for damages.    This is the way they work to spread the wealth.  Create the problem by giving FREE homes to people who cannot pay for them. Block those who try in advance to straighten the problem out.  Encourage those who should not have bought the homes in the first place to sue for damages.   NF