don barrett

Fannie-Where did We Go Wrong?

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I read Mr. Fleckensteins article on the meltdown of Fannie and while I agree with most of what he said,I would like to add a few remarks. I knew this Raines and Howard were behind a lot of Fannies problems and that their juggling of the books to get themselves and their cronies bonuses. I read a few minutes ago that their juggling the books cost Fannie around $50 billion
to correct what these clowns have done.
I went back and did some research and Fannie was a very profitable entity at least until 1996,as Fannie had 10 consecutive years of record profits up to 1996.So,what happened between 1996 and now that brought Fannie to her knees?
Let me first plot a timeline of events and we'll see if we can spot where the Fannie hit the fan.
Fannie was created in 1938 and operated for close to 50 years within the guidelines as mandated by Congress. In 1983 Fannie was pushed by HUD to enter the multi-family market and Fannie became a landlord. I remember hearing through the years about apartments that the rent was based on your earnings and this must have been Fannie in action. I had one rental property and I swore I would never rent anything else. I doubt Fannie fared much better.
In 1991 a program called"Opening the Doors to Affordable Housing" was started and by 1993 more than $10 billion in mortgages had been originated in this program. In 1994 a new program started and it was called "The Trillion Dollar Commitment" for affordable housing. By 1998 this program had originated half a trillion dollars in low income mortgages. Mr. Fleckenstein stated that Greenspan didn't have anything or didn't want anything to do with Fannie. Greenspan made at least one decision on Fannie and that was to loosen lending regulations and this led to one of the main reasons we got to this point. He let the banks get by with fewer appraisals. I think this is as dangerous as not verifying employment or income. How can you make a loan on some property when you have no clue what it's worth. So,later we went from no appraisal to not verifying employment to not verifying income and I read tonight not to discriminate against people that already owed to much money. So,from March 1994 Fannie has gone from making qualified loans based on sane lending to no appraisal,no income or employment verification and don't worry if you already owe more than you could ever hope to repay,your just the type of person were looking for.
A couple of more interesting points., In 1994 Fannie bought back $634 million "risky securities" which I assume was Fannie paper from Orange County,Ca for $577 million and I bet Fannie lost on this transaction. March,10,1994 Clinton visits Fannie as he has called for Fannie to relax their lending policy so more poor and lower-middle class can qualify for loans. In 2001 HUD pushed Fannie for more multi-family and subprime loans to be approved.
This Raines worked at Fannie once before he returned in 1998. Raines worked in the Clinton cabinet and was appointed by Clinton in 1998 to the Fannie board. The President can appoint 5 people to the board so we have Raines and 4 more appointed by Clinton and this was the beginning of the end. Raines ran amuck from 1998 to 2003 and he was succeeded by Mudd that was already at Fannie. Raines decided his 5 years were worth some $90 million of which an estimated $52 million was gotten frauduantly. Raines,Gorelick and Jim Johnson all played a part in this fraud and Johnson was eying the VP slot with O'Bama until the Fannie hit the Fan!
To me it is apparent that Fannie was a very important part of the American dream,home ownership,until the rats got in the woodpile. So this problem started several years ago and the only people I can see at fault are the crooks and the people behind the bad policy changes. Mr.Fleckenstein mentioned one that played a big part in this mess-Barney,Don't call me Fife,Frank. another that has played a big part is Chris,Don't ask me my mortgage rate" Dodd. All the clowns that have sat on the hill for the last 20 years or so are part of the blame.
Also,to put any kind of blame on Mr. Paulson I don't think is fair as this started many years ago. Mr. Bernanke has put in a new team and they have to be better than what was there the last 20 years. Let Fannie be operated in a proper manner and keep Congress out of the way and this can be turned around. You can't let 50 or 60% of all the home loans in this country go under or Fannie that manages the loans.. Also,Paulson has already said he is finished in January so he has nothing to gain. With proper management I don't think the taxpayer will be hit near as hard as some of the estimates I've read. Fannie has already raised some fees for the loans and there is a nice spread Fannie is collecting. It will take less time to turn it around than it did to get to the edge of the cliff!