Barney Frank was a leading opponent of the regulation of Fannie Mae and Freddie Mac. Frank never made to answer about how we got into the present crisis. Why he fought so hard to squash regulation or why he pushed Fannie and Freddie to get involved with making loans to people who could not afford them? Because he was never confronted, he has been empowered to go at it again.
In March, Fannie Mae announced it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Reports are that Freddie Mac will implement the same policy next month.
Representatives Barney Frank, chairman of the House Financial Services Committee, and Anthony Weiner, the man who wanted to be NYC Mayor, sent the companies letters asking them to ease up on the legislation, warned that a 70 percent sales threshold “may be too onerous” and could lead condo buyers to shun new developments, according to the paper. The legislators asked the companies to “make appropriate adjustments” to their underwriting standards for condos. In other words, here we go again:
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Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to “roll the dice” in the name of affordable housing. That didn’t turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity — with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.
You read that right. After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.
Fannie and Freddie have restricted loans to condo buyers in these situations because they represent a red flag that the developments — many of which were planned and built at the height of the housing bubble — may face financial trouble down the road. But never mind all that. Messrs. Frank and Weiner think, in all their wisdom and years of experience underwriting mortgages, that the new rules “may be too onerous.”
And in a display of the wit for which Mr. Frank is famous, the letter writers slyly point out that higher lending standards won’t reduce taxpayer exposure to bad loans because the Federal Housing Administration has even lower standards for condos. “While the underlying goal may be to reduce taxpayer exposure relating to the current conservatorship of the GSEs [government sponsored entities], such a goal would not have such an effect if it merely results in a shifting of loans from the GSEs to the FHA.” Tougher lending standards will merely shift market share from one government program to another, so what’s the point in being cautious?
Fannie and Freddie have already lost tens of billions of dollars betting on the mortgage market — with that bill being handed to taxpayers. They face still more losses going forward, because in the wake of their nationalization last year their new “mission” has become to do whatever it takes to prop up the housing market. The last thing they need is lawmakers like Mr. Frank, who did so much to lay the groundwork for their collapse, telling them to play faster and looser with their lending standards.
Fannie and Freddie have always been political creatures under the best circumstances. But we don’t remember anyone electing Mr. Frank underwriter-in-chief of the United States.