FMN and FRE were fully aware of the mortgages they were buying and the government encouraged them to lower their standards:
The U.S. Department of Housing and Urban Development's mortgage policies fueled the trend towards issuing risky loans.[84][85][86] In 1995, Fannie Mae and Freddie Mac began receiving affordable housing credit for purchasing mortgage backed securities which included loans to low income borrowers. This resulted in the agencies purchasing subprime securities.[87] Subprime mortgage loan originations surged by 25% per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years.
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A September 30, 1999 New York Times article stated, "... the Fannie Mae Corporation is easing the credit requirements on loans... The action... will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough... Fannie Mae... has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people... borrowers whose incomes, credit ratings and savings are not good enough... Fannie Mae is taking on significantly more risk... the government-subsidized corporation may run into trouble... prompting a government rescue... the move is intended in part to increase the number of... home owners who tend to have worse credit ratings..." [91]
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Gerald P. O'Driscoll former vice president at the Federal Reserve Bank of Dallas stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism. Government backing let Fannie and Freddie dominate the mortgage-underwriting. "The politicians created the mortgage giants, which then returned some of the profits to the pols - sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents."[93]
On April 18, 2006 home loan giant Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Much of the illegal fund raising benefited members of the United States House Committee on Financial Services, a panel whose decisions can affect Freddie Mac.[94]
en.wikipedia.org
Top Recipients of Fannie Mae and Freddie Mac
Campaign Contributions, 1989-2008
opensecrets.org
Dodd, Kerry, Obama are the top three. |
