Fannie Mae & Freddie Mac
The Charge
Congressman Steve Kagen voted to bail out “Fannie Mae” and “Freddie Mac,” costing taxpayers billions of dollars.
The Facts
Not a dime of taxpayer money has been given to Fannie Mae or Freddie Mac.
Taxpayer safeguards were added to the Treasury’s line of credit to Fannie Mae to ensure that taxpayers are paid back if any taxpayer money is ever used.
The non-partisan Congressional Budget Office says the bill Congress passed will not cost taxpayers a dime.
In July of 2007, Congressman Kagen and the U.S. Congress adopted long-overdue regulations for Fannie and Freddie that set responsible standards for mortgage lending, limit the salaries of executives and provide oversight to prevent the kinds of abuses that led to the current crisis.
[H.R. 3221 July 23 2008]
Because of Congressional action, consumers stand to benefit from lower mortgage rates, says Mark Zandi, chief economist with Moody’s Economy.com and economics advisor to Presidential candidate John McCain.
Fannie Mae and Freddie Mac own or guarantee about half of all the home loans in the nation.
Background
Franklin Roosevelt invented Fannie Mae, or the Federal National Mortgage Association, at the height of the Great Depression when home foreclosures were exploding.
At the time, there were no long-term mortgages. Mortgage payments were interest-only, the principle was due at the end of the term–usually five years–and if you couldn’t persuade a bank to roll it over, you lost the house.
The new system established in 1938 with Fannie Mae worked. Fannie Mae bought mortgages from banks so banks could make more home loans, and issued bonds backed by the mortgages. Homeownership rates soared. The government’s bank insurance funds regularly turned a profit.
In 1968, as part of wide-ranging budget reforms, Fannie Mae was privatized. For decades, Fannie continued to work well. But private mortgage brokers began offering mortgage-backed bonds and their lending standards gradually declined. To keep up with these private brokers, executives at Fannie Mae decided to gamble with exotic securities backed by sub-prime mortgages.
In 2005, Republicans and Democrats in Congress tried to institute common-sense rules to prevent the abuses that led to the sub-prime mortgage crisis.
However, the White House and former Federal Reserve Board Chairman Alan Greenspan refused to issue any regulations. The then-chairman of the House Financial Services Committee, Republican Mike Oxley, said, “We missed a golden opportunity that would have avoided a lot of the problems that we’re facing now, if we hadn’t had such a firm ideological position at the White House and the Treasury and the Fed.”
