Saturday, June 27, 2009

Liberals Call for Fannie and Freddie to "Relax" Mortgage Standards – AGAIN!

You're not going to believe this. Here we are in the midst of a major financial crisis – a crisis largely brought about by lax and corrupt lending practices at mortgage giants Fannie Mae and Freddie Mac – and guess what Democratic Reps. Barney Frank (D-MA) and Anthony Weiner (D-NY) want to do.
Yep, you guessed it. They want the quasi-public organizations to "relax" their mortgage standards yet again!
Here's the scoop according to Reuters:
Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.
In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac is due to implement similar policies next month, the paper said.
In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.
Now, there is no question that the condo market has been slammed in this economy, wreaking havoc in many parts of the country, especially in places like Florida. But relaxing standards is clearly not the answer. As The Atlantic recently noted: "...It's a little unclear...why Fannie and Freddie should listen to Congress, since guaranteeing condos poses greater risk to taxpayers' wallets than single-family home mortgages."
In other words, trying to slap a quick fix on the condo problem will only make matters worse. Don't we already know how this works?

As you may recall, the first domino to fall in this financial crisis was the housing market. And the reason for that? Under pressure from the Clinton administration and their liberal allies in Congress, Fannie and Freddie relaxed their lending standards and provided home loans to people who could not afford them.
Here's how The New York Times described this risky scheme back in 1999:
In a move that could help increase homeownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders...Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate-income home people and felt pressure from stockholders to maintain its phenomenal growth in profits.
The article goes on to predict that such a strategy might not cause problems during times of economic prosperity, but that Fannie Mae could run into serious financial difficulty during an economic downturn.
Now Frank and company seek to repeat this mistake, even after the collapse. (Frank has a sorry history of protecting Fannie and Freddie.)

By the way, if you haven't yet checked it out, click here to watch Judicial Watch's educational panel entitled "The Truth About the Financial Crisis." (We have a written transcript available as well.) Then you'll have an even better understanding of why Frank and Weiner's plan is a terrible idea.

No comments: