A Mortgage Crisis Chronology

Here's a great article describing what led up to the our current economic situation.

It demonstrates that without the social experiment of the Community Reinvestment Act our economy would not be in its current state.

Hopefully it also wakes us up to the idiocy of putting those most at fault for its destruction in charge of its resurrection.

It's a must read, but I've summarized below:

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(1977) Jimmy Carter, pressed by grassroots organization and opposed by bankers, made law the Community Reinvestment Act (CRA).

The asserted that "regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business...regulated financial institutions have continuing and affirmative obligation" to meet these needs.

(1980s) Community organizations, including ACORN, began to reshape CRA in government-imposition as the "affirmative obligation" phrase might suggest as lending institutions resist bad lending practices in poor minority communities.

(1990s) Community organizer Barrack Obama works closed with ACORN activists by employing tactics like crowding bank lobbies, blocking drive-up tellers and demonstrating at the homes of local bank executives in effort to "convince" them to make risky loans in poor and minority areas.

(1994) Obama and others represent organizers in a class action lawsuit alleging that Citibank had "intentionally discriminated against the plaintiffs on the basis of race."

(June 1995) Clinton Administration announces a bold home ownership strategy with included monumental loosening of credit standards and imposition of sub prime lending quotas.

Janet Reno announces, "We will tackle lending discrimination wherever it appears." Going further, "No loan is exempt; no bank is immune...for those who thumb their nose at us, I promise vigorous enforcement."

(1997) Clinton's HUD Secretary, Andrew Cuomo boasts, "GSE [Government Sponsored Entities, like FNMA and Freddie Mac] present in the sub prime market could be of significant benefit to lower-income families, minorities, and families living in under served areas..."

(1998) FNMA falsifies accounting records by shifting $200 million in 1998 expenses to later periods triggering $27 million in bonuses for top executives, including over a $1 million for its CEO, Franklin Raines.

(April 1998) Cuomo admits CRA lending policies amount to "affirmative action" lending and that risks are greater and defaults will be higher than the rest of the mortgage portfolio.

(Early 2000) City Journal warns that Clinton administration had turned CRA into "a vast extortion scheme against the nation's banks."

(March 2000) Rep. Richard Baker (R-LA) proposes a bill to reform Fannie and Freddie's oversight regulations.

Rep. Barney Frank (D-MA) dismissed the idea stating that concerns are "overblown" and that their is "no federal liability there whatsoever."

George Bush's Treasury Department testifies in favor of Fannie/Freddie regulation, calling for private market discipline, increased transparency and market competition. A Fannie spokesman calls his words "inept, " "irresponsible" and "unprofessional."

(June 2001) Rep. Baker pursues his bill to transfer regulatory authority over Fannie and Freddie to the Fed.

Rep Paul Kanjorski (D-PA) calls his proposal "a solution in search of a problem," stating that the current "system with two regulators is operating increasingly effectively."

(February 2003) The GSE regulator warns that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing markets.

(June 2003) Freddie Mac understates profits by $6.9 billion!

(July 2003) GOP senators (Hagel, Dole & Sununu) introduces legislation to address more regulation of Fannie and Freddie. The bill is blocked by Democrats.

(September 2003) Rep. Baker (R-LA) warns, "I have concerns that if appropriate resources aren't allocated for internal risk management, the consequences will be far more severe than just a real estate slowdown."

The New York Times reports that the Bush administration recommends "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." In the same report, Democrats, "fear that tighter regulation of companies could sharply reduce their commitment to financing low-income and affordable housing."

Bush Treasury Secretary John Snow testifies to enact "legislation to create a new Federal agency to regulate and supervise" Fannie and Freddie.

Rep. Barney Frank (D-MA): "I do not think we are facing any kind of a crisis." He continued, "I believe that we have probably done too little rather too much to push them to meet the goals of affordable housing..."

(October 2003) Fannie Mae discloses a $1.2 billion accounting error.

(November 2003) Council of Economic Advisers warns that the enormous size of mortgage-backed securities market could have a ripple effect throughout the financial system from even a small mistake in Fannie or Freddie's risk management.

(September 2004) Fannie's regulator reports that CEO Franklin Raines manipulated its accounting to overstate profits. Finally, realizing that greater regulation was imminent, Fannie produced TV ads before the Senate committee vote depicting a hard-up Latino couple and how increased regulation would hurt their American Dream. They prevailed.

(October 2004) Rep. Baker (R-LA) again warned about the coming crisis, calling the two behemoths Frankenstein-like that has "grown so powerful that it can intimidate and arrogantly flout all accountability to the very government that created it."

Rep. Maxine Waters (D-CA): "Mr. Chairman, we do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Mr. Frank Raines."

Rep. Gregory Meeks (D-NY): "And as well as the fact that I'm just pissed off at OFHEO [their regulator], because if it wasn't for you I don't think we'd be here in the first place..."

Rep. Ed Royce (R-CA): "In addition to our important oversight role in this committee, I hope that we will move swiftly to create a new regulatory structure for Fannie Mae..."

Rep. Lacy Clay (D-MI): "This hearing is a political lynching of Franklin Raines."

[This is a great exchange during between the members of HR banking committee that goes on and on. I urge you read it in the full article.]

(January 2005-July 2006) Sen. Chuck Hagel (R-NE) reintroduces the GOP bill for new regulation of Fannie and Freddie.

Alan Greenspan testifies that the size of the GSE portfolios "poses a risk to the global financial system. It would be difficult, if not impossible, to bail out the lenders [Fannie & Freddie]"

Bloomberg writes, "If that bill had become law, then the world would be different today...But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee...That such a reckless political stand could have been taken by the Democrats was obscene even then."

(September 2008) Rep. Arthur Davis (D) admits Democrats were in error: "Like a lot of my Democratic colleagues I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable home ownership when in retrospect I should have heeded the concerns raised by their regulator in 2004."

Oops! (But an honest man who can admit his mistakes!)