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The Truth Behind The Mortgage Crisis 10/03/2008

Franklin Raines

The CEO of Fannie Mae made
millions off of risky loans.


Who would have thought the New York Times could ever be prophetic? Or perhaps the looming mortgage crisis was so obvious to economists that they just couldn't miss it even nine years ago. Thanks to the internet, anyone can read the origin of the current economic meltdown.

Here are the opening paragraphs of an article entitled "Fannie Mae Eases Credit To Aid Mortgage Lending" published in the New York Times on September 30, 1999.

"In a move that could help increase home ownership 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 people and felt pressure from stock holders to maintain its phenomenal growth in profits.

"In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans."

It seems pretty obvious that all the ingredients were here a decade ago to create an economic disaster. Home ownership, which is a natural desire for every American, was pushed to the breaking point. Because of the impact these risky loans would have on minorities, anyone opposing them was simply labeled "racist" or "discriminatory." Sound principles were thrown out the window, perhaps to buy votes or perhaps out of real compassion. But the result was anything but compassionate. People who could not afford to pay back their loans were put in a losing position. I cannot imagine the pressure these people have been under because of misguided governmental activism and private greed.

I have friends in the real estate business who have been watching this charade go on for years as unqualified buyers were given substantial loans because the banks feared the consequences of upholding their sound financial standards. Nobody wants to discourage the "American dream," but the nightmare of foreclosure is worse than renting until you can afford to buy a home.

Even more troubling is the fact that the problem goes beyond mismanagement. There is a video on YouTube that documents a hearing in 2004 where Republicans called Fannie Mae into question and specifically addressed the hundreds of thousands of dollars that were going toward executive bonuses. For years, the director of Fannie Mae cooked the books in order to earn millions of dollars in extra payouts. When he was called out, his defenders accused his critics of a "lynching." No action was taken, most likely because so many in Congress were receiving millions of dollars in campaign contributions from these "Government Sponsored Entities" (GSE's).

Two years later, some sensible senators (including John McCain) cosponsored legislation to clean up GSE's and specifically mentioned Fannie Mae and Freddie Mac. They warned:

"Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were 'illusions deliberately and systematically created' by the company's senior management, which resulted in a $10.6 billion accounting scandal.

"The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

"The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform."

Again, nothing was done. During a highly charged presidential race, it can be difficult to discern the facts, but the record is clear. Foolish government regulation, manipulation and greed put our country in a dangerous position. And now many of the very people who caused the problem are telling us that they will fix the problem.

Now more than ever, we need truth and accountability, not fear, panic and cover-up. Beware of all who say they will now correct the problems they so often created. A return to sound financial principles is necessary. Remember, although we are told that this new "bailout" bill means that every American owes thousands of dollars to cover it, the only ones who will actually pay are the very ones who earn enough to create jobs, encourage productivity, consume goods and strengthen the economy. If government weakens high wage earners through more foolish taxation, everyone will suffer. Beware, be careful and be prayerful!

Author: James Robison

Word Count: 906

About the author: James Robison is the founder and president of LIFE Outreach International, a Christian media ministry and mission relief organization. He and his wife, Betty, host of the television program Life Today; He has authored numerous books, including The Soul of a Nation, The Absolutes: Freedom's Only Hope and True Prosperity.

Media Contact: Randy Robison, editor at . Photo available upon request. Reprint rights granted with attribution for complete, unedited article. Revisions allowed only with approval.