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Today, four former CEOs of Fannie Mae and Freddie Mac testified before the on how their companies’ actions may have “contributed to the ongoing crisis.” Blaming Fannie, Freddie, the Community Reinvestment Act (CRA), and low-income people is one of conservatives’ favorite talking points. In September, Rep. Michele Bachmann (R-MN) touted an article criticizing the CRA for pushing “Fannie and Freddie to aggressively lend to minority communities.”
But as the Wonk Room’s Pat Garofalo points out, at the beginning of today’s hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a conservative myth. Later in the hearing, Rep. Edolphus Towns (D-NY) asked the four CEOs whether poor people caused the current financial crisis. All said “no”:
- Richard Syron, former Freddie CEO: “I would think that it wasn’t mostly trying to do things for poor people.”
- Daniel Mudd, former Fannie CEO: “[W]hen the market goes down, it’s the folks who are the closest to the margin who — who get hurt first and longest every time.”
- Leland Brendsel, former Freddie CEO: “I cannot recall ever being forced to make — or to purchase a mortgage loan that I didn’t feel, as a matter of policy at Freddie Mac, was a good mortgage loan, a sound mortgage loan, and an attractive mortgage loan for the homebuyer or the owner of an apartment building.”
- Franklin Raines, former Fannie CEO: “I do not believe that poor people are the cause of the current financial crisis. … Most of the losses, as I read the record, have come on mortgages that were made to middle-class and upper-middle-class people, not to poor people.”
Congress passed the Community Reinvestment Act in 1977, requiring banks “to lend throughout the communities they serve.” In the 1990s, greater mortgage lending to lower-income households by CRA-coveed banks increased the homeownership rate for lower-income and minority families. As CAP scholar Tim Westrich has written, “The real culprits in the mortgage mess are non-bank mortgage companies — not covered by CRA — that originated the lion’s share of bad mortgages at the heart of the crisis. They made an estimated 50 percent of subprime loans in 2005.”
Numerous other scholars, including Nobel-winning economist Paul Krugman and Center for Economic and Policy Research co-director Dean Baker, have also explained that while Fannie and Freddie made many bad decisions, they weren’t primarily to blame for the financial crisis. At a hearing in September, former top government economic experts agreed that conservatives were pushing myths, rather than facts.
Source: Think Progress