4 MIN READ - A Deep Fannie dive courtesy of the Cautious Optimism Correspondent for Economic Affairs and other Egghead Stuff.
It was ten years ago on September 6th that taxpayer-backed GSE’s Fannie Mae and Freddie Mac—which owned or guaranteed over half of the $12 trillion U.S. residential mortgage market at the time—were taken into conservatorship by the U.S. Treasury and Federal Housing Finance Agency. The distressed financial positions and effective failures of the two housing giants served as a prelude to the major financial crisis that would climax in the month starting a little over one week later.
Here are some statutes, briefing passages, and quotes from the years before Fannie and Freddie’s demise that have already nearly disappeared from the media, and academic/policy record.
1) "The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return"
-Housing and Community Development Act of 1992, Title XIII
2) "Low- and moderate-income goal. At least 50 percent of the dwelling units financed by each GSE’s mortgage purchases should be for families with incomes no greater than area median income (AMI), defined as median income for the metropolitan area or nonmetropolitan county. The corresponding goal was 42 percent for 1997-2000.”
“Special affordable goal. At least 20 percent of the dwelling units financed by each GSE’s mortgage purchases should be for very low-income families (those with incomes no greater than 60 percent of AMI) or for low-income families (those with incomes no greater than 80 percent of AMI) in low income areas. The corresponding goal was 14 percent for 1997-2000."
-2001 Department of Housing and Urban Development Issue Brief
3) “GSE Low-and-Moderate Income Housing Goals:
“Current : 50%
-HUD Archives: News Release November 1, 2004
4) "Fannie Mae and Freddie Mac will have to increase their funding of mortgages for low- and moderate-income home buyers, under a new rule the Department of Housing and Urban Development announced yesterday."
"To meet the new goals, Fannie and Freddie will need to buy over the next four years an estimated 400,000 more qualifying loans than the 10 million loans they otherwise would have bought."
-"HUD Sets New Goals for Fannie, Freddie," Washington Post, Nov 2, 2004
5) "In this report on Community Reinvestment Act (CRA) agreements, the National Community Reinvestment Coalition (NCRC) finds that $4.2 trillion dollars have been infused into minority and lower income neighborhoods since CRA passed in 1977. Banks have committed to 430 CRA agreements, instituting multi-year programs covering loans, investments and banking services to communities in need. "
-National Community Reinvestment Coalition (NCRC) news release, Sep 19, 2005
6) "We will take CRA loans off your hands–we will buy them from your portfolios, or package them into securities–so you have fresh cash to make more CRA loans. Some people have assumed we don’t buy tough loans. Let me correct that misimpression right now. We want your CRA loans because they help us meet our housing goals.”
-Jamie Gorelick, Vice Chairman Fannie Mae, 2000 American Bankers Association conference speech
7) "Fannie Mae will buy CRA loans from lenders’ portfolios; we’ll package them into securities; we’ll purchase CRA mortgages at the point of origination; and we’ll create customized CRA-targeted securities. This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending."
-Jamie Gorelick, Vice Chairman Fannie Mae, public statement 2001
8.) "Countrywide's goal is to meet the Six Hundred Billion Dollar challenge, funding $600 billion in home loans to minorities and lower-income borrowers, and to borrowers in lower-income communities, between 2001 and 2010. As of July 31, 2004, the company had funded nearly $301 billion toward this goal."
"The result of these efforts is an enormous pipeline of mortgages to low- and moderate-income buyers. With this pipeline, Countrywide Securities Corporation (CSC) can potentially help you meet your Community Reinvestment Act (CRA) goals by offering both whole loan and mortgage-backed securities that are eligible for CRA credit."
-Countrywide website (now defunct) marketing CRA packaged securities to CRA-regulated banks as a vehicle to satisfy their CRA federal regulatory requirements.
9) "Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) in the secondary mortgage market, are the two largest sources of housing finance in the United States. They fund these mortgages by purchasing loans directly from primary market mortgage originators, such as mortgage bankers and depository institutions, and holding these loans in portfolio, or by acting as a conduit and issuing mortgage-backed securities (MBS), which are then sold in the capital markets to a wide variety of investors. HUD has estimated that 11.7 million dwelling units were financed by conventional conforming mortgages in 1998, and that the GSEs provided financing for 55 percent of these units."
-Introduction, 2001 Department of Housing and Urban Development Issue Brief