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Source: Michael P. Tremoglie, The Bulletin
Some former Fannie Mae and Freddie Mac CEOs, the government-sponsored enterprises (GSEs) that provide liquidity for the mortgage market, said they were pressured by the federal government and advocacy groups to purchase high-risk mortgages.
During a Dec. 9 hearing of the House Oversight and Government Reform Committee, which was investigating the role the companies had in the current mortgage crisis, four former CEOs; Richard Syron and Leland Brendsel of Freddie Mac, as well as, Franklin Raines and Daniel Mudd of Fannie Mae, were asked by U.S. Rep. Patrick T. McHenry, R-N.C., if they ever felt pressure by Congress to make risky loans.
“In order to fulfill your affordable housing goal … given to you by Congress … did you feel pressure from Congress to do riskier mortgages?” Mr. McHenry asked.
Initially, there was some confusion by Mr. McHenry’s use of the word Congress. Three of the four replied that the goals were furnished to them by HUD, not by Congress — and that they did feel pressure to make high risk transactions.
“As the goals went up, and the goals were specified by HUD, you … had to take more risk,” said Mr. Syron.
Mr. Raines said that the goals set by HUD were forcing the companies “to entertain loans they would not have otherwise entertained.”
Mr. McHenry then asked if there were pressure from advocacy groups and Mr. Syron responded that was true.
U.S. Rep. Michael Turner, R-Ohio, asked Mr. Raines if the Community Reinvestment Act (CRA) provided the “fuel” for increasing subprime loans.
Mr. Raines acknowledged the legitimacy of his point. He said it could have been possible they acted as a catalyst. But, he added, it was difficult to know if a policy went from participating in the market to encouraging bad behavior.
U.S. Rep. Stephen Lynch, D-Mass., said information gained from corporate communications, in the committee’s possession, indicated that warnings were issued to all of them about the dangerous ratio of loans to assets and the types of loans. But these warnings were ignored despite the fact the companies were jeopardized.
Mr. Lynch said that there was a huge commitment by Fannie Mae and Freddie Mac to purchase loans of “questionably quality.” Thirty-three percent of their total 2006 and 2007 mortgage portfolio came from these types of loans.
But not everyone wanted to blame Freddie Mac and Fannie Mae. U.S. Rep. Edolphus Towns, D-N.Y., defended the companies and criticized those who questioned them.
“We have heard some people claim that poor people are to blame for this,” he said during the hearing. “[T]he way this argument goes, the federal government forced the banks to give mortgages when they shouldn’t have — to people who were not credit-worthy, then forced Fannie Mae and Freddie Mac to buy up those bad mortgages.” More HERE
