The Great American Mortgage Swindle - The Taxpayers Lose Again

by John W. Wallace

posted 10/03/08

In 1938, the Federal National Mortgage Association (Fannie Mae) was created to help Americans get mortgages. Fannie Mae is a private GSE (Govt. Sponsored Entity) regulated by Congress and it was created to help the country get out of the depression by making it easier for Americans to buy homes. Although Fannie Mae was established as a private company with shareholders and was supposed to make a profit, the American taxpayers would still be stuck for the bill if Fannie Mae suffered any losses.

A similar private organization, the Federal Home Loan Mortgage Corp (Freddie Mac), was established in 1970 and charged with creating a national secondary market for conventional home mortgages. By doing so, Congress hoped to level out the disparity among regions of the nation in regard to availability of and interest rates on home mortgages.

In 1977, however, Congress decided that it was time for the federal government to intrude into the free-market mortgage business through the introduction of welfare state type legislation. It passed the Community Reinvestment Act (CRA) which required banks and other lending institutions to make extraordinary efforts to give loans to “communities of color” disregarding sound economic and risk guidelines that were so successful in the past.In the name of ending alleged discrimination, members of these “communities of color” were no longer required to provide all of the standard mortgage documents such as verification of income, proof of employment, credit history, or even provide a down payment. Because of the federal loan guarantees that came with the legislation, many banks and mortgage companies bundled billions of dollars of “subprime” loans and sold them to investors both in the USA and in foreign countries. It is these bundled Community Reinvestment Act type mortgages, that were doomed to fail, that would eventually cause the near collapse of U.S. and global financial markets in 2008.

In 1997, The Clinton administration, pushing the socialist idea that home ownership is a right of all Americans, placed even more pressure on banks to grant even more mortgages to the poor, minorities and people with bad credit. Reacting to the pressure applied by the Clinton Administration and the threat of federal lawsuits by Janet Reno, American banks began making thousands of bad loans, many with no money down, no documentation and even loans for up to 120% of actual values. Executives at Fannie Mae started to receive huge bonuses when mortgage loans targets were met. To help push the program, Franklin Raines and Jamie Garelick, from the Clinton Administration, were given top positions in Fannie Mae.

In 1998, Fannie Mae reported the following bonuses to some of their executives: chairman and chief executive James A. Johnson received $1.932 million; Franklin D. Raines, chairman-designate, received $1.11 million; Chief Operating Officer Lawrence M. Small received $1.108 million; Vice Chairman Jamie S. Gorelick received $779,625; Chief Financial Officer J. Timothy Howard received $493,750; and Robert J. Levin, an executive vice president, received $493,750. These bonuses increased in future years as fraudelent entries were made in the financial records.

In 2001, Enron Corporation collapses and congress the SEC and the FBI investigates. In the ensuing years, many of the Enron executives were charged with various federal crimes and many of them were sentenced to years in federal prison. The chielf executives of the company were found guilty of cooking the books. As a result of this business failure, in 2002 congress passed the Sorbanes-Oxley Act, which introduced major changes to the regulation of financial practice and corporate governance. Named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, it set deadlines for the record keeping compliance by the nation's corporations.

In 2003, President George Bush called for legislation to give the government more oversight of Fannie Mae and Freddie Mac, but his proposal fell on deaf congressional ears, many of whose members were receiving substantial bribes (I mean campaign contributions) from Fannie Mae and Freddie Mac. In 2004, the Office of Management and Budget, found that massive fraudulent bookkeeping practices were occurring at Fannie Mae and that these practices were very similar to the fraudelent practices in the Enron Corp case.

The OMB determined that these annual false mortgage statistics were used to justify the top executives getting excessive bonuses every year. Unlike the Enron case, however, congress decided not to hold any hearings and the FBI did not launch any criminal investigations. As a result of the OMB report, Franklin Raines & other top execs were forced to resign from Fannie Mae for doing the same thing that Enron executives did (cookin the books), but unlike the Enron case, the Fannie Mae executives only had to give back $31.4 million dollars in fines after a civil proceeding.

In 2005, Senators Chuck Hagel (NE), Elizabeth Dole (NC), John Sununu (NH) and John McCain (AZ) proposed legislation entitled, " The Federal Housing Enterprise Regulatory Reform Act" (S-190) that was designed to give the federal government increased federal oversight over Fannie Mae, Freedie Mac and other institutions, but the legislation was met with fierce Democratic partisan opposition and it went nowhere. In support of this legislation, Sen McCain stated: "if Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

TWO SPECIAL INTEREST GROUPS THAT CONTIBUTED TO THE MORTGAGE INDUSTRY FAILURES:

1. The National Council of LaRaza, a racist and pro-illegal alien amnesty group, along with its Development Fund, have received millions of dollars in federal funds to "counsel" their constituents (including illegal aliens) on how to obtain mortgages with little to no money down. For years, there has been a rapidly expanding illegal alien home loan racket that the media and the federal government still are unwilling to talk about. Many banks looking for more federal guaranteed loan handouts, led by Wachovia and Bank of America, launched aggressive campaigns designed to attract more illegal alien homebuyers, subsidized by the American taxpayers of course.
2. Another socialist Racist group ACORN (Association of Community Organizations for Reform Now) demanded “affirmative action” in all lending practices and programs. They pressured banks to make subprime loans to poor people of color with bad credit. Madeline Talbott, a Chicago ACORN leader, has even boasted of “dragging banks kicking and screaming” into these dubious loans. As conservative community activist Robert Woodson put it, “The same corporations that pay ransom to Jesse Jackson and Al Sharpton also pay ransom to ACORN.” The ACORN organization actively supports candidates of the Democratic Party and many ACORN people have also been arrested on various charges involving voter fraud.

To make matters worse, The most recent House and Senate Democratic bail-out legislation contained a well-hidden provision that would forward some of the profits, indirectly, to help fund organizations like LaRaza and ACORN. If this provision is included in the final versions, the American taxpayer will be giving more cash to the very groups that helped create the lending mess in the first place.

By 2008, Fannie Mae and Freddie Mac had loaned or underwritten about $5.3 trillion of the total $12 trillion of outstanding mortgage debt in the United States. Because of the shear magnitude of mortgages held, many in government and in the private sector believed that Freddie Mac and Fannie Mae were too big to be allowed to fail and the government had to take them over completely with taxpayers money.

Because of this philosophy, American Taxpayers either have or shortly will have shelled out close to $1.4 Trillion in bailout money for various reasons in the last 14 months alone.Here’s a list of some of the more recent Federal government's actions in the financial markets recently published by Reuters:

Cost to taxpayers and the Bailout Type

• $ 700 billion+ - Proposed current Treasury Department legislation
• $ 29 billion - Bear Stearns financing
• $ 200 bilion - Fannie Mae and Freddie Mac nationalization
• $ 85 billion - AIG loan and nationalization
• $ 300 billion - Federal Housing Administration housing rescue bill
• $4 billion - Mortgage community grants
• $87 billion - JPMorgan Chase repayments
• $200 billion+ - Loans to banks via Fed's Term Auction Facility
• $ 50 billion - Loans from Depression-era Exchange Stabilization Fund
• $144 billion - Purchases of mortgage securities by Fannie Mae and Freddie Mac

TOTAL: $1.8 trillion+

COST PER US HOUSHOLD: $17,064+

I believe that the solution to the problem is to end government meddling in the free market. It is time this process is put to an end, or at the very least, reigned in. The government should sell off the assets of Fannie Mae and Freddie Mac quickly and close down these corrupt organizations. Government must stop pandering to special interest groups, reduce the volume and complexity of regulations it imposes on lending institutions and stop passing social engineering legislation, like the Community Reinvestment Act, that interferes in the free market economy and which has ultimately led to this financial crisis.

It's a tough battle for those Senators and Members of Congress who have stood tall and who have voted against this massive fleecing of the American taxpayers for the benefit of Wall Street investors and big commercial banks. Unfortunately, if congress can be judged by its past practices, any proposed bailout legislation that comes to a vote will undoubtedly be loaded with riders, earmarks and all forms of other "pork" so that the special interests that are looking for us to bail them out will win and the American taxpayers will lose again.

John Wallace

NY Campaign for Liberty

Chatham, New York 12037

www.NYCampaignForLiberty.com