Fannie And Freddie

Spawn Of Fannie And Freddie

Subprime Scandal: A bipartisan bill to "reform" Fannie Mae and Freddie Mac creates a multibillion-dollar affordable-housing slush fund for Acorn clones who exist to shake down lenders for risky loans.
The devil is in the details of the 442-page Johnson-Crapo housing finance reform bill, set for Senate markup this Tuesday.

Cynically titled "The Housing Finance Reform and Taxpayer Protection Act of 2014," it replaces Fannie and Freddie with a Federal
Mortgage Insurance Corp. that broadly expands the affordable-housing mission that fueled the financial crisis.

This new federal entity will require "equitable access" to mortgage credit for "underserved" borrowers with low income and weak credit — that is, borrowers who normally wouldn't qualify for a loan.

Worse than the affordable-housing quotas that Fannie and Freddie had to meet in the run-up to the crisis, this new entity would impose a stiff affordable-housing fee on private mortgage securitizers who don't adequately serve "the needs of the underserved."

That the bill encourages risky lending is bad enough. But the billions collected each year through these fees are earmarked for affordable-housing advocacy groups that pressure lenders to make subprime loans.

Who will approve these lucky recipients? The Obama HUD, the most radical in the history of the agency.

The fees feed a "Market Access Fund," half of which will go to grants for such shakedown groups "to address the homeownership needs of extremely low-, very low-, low-, and moderate-income and underserved or hard-to-serve populations."

How could this be achieved? One, by "offering additional credit support for certain eligible mortgage loans or pools of eligible mortgage loans, such as by covering a portion of any capital required to obtain insurance from the corporation" — that is, housing subsidies.

And, two, by "grants and loans for research, development and pilot testing of innovations in underwriting."

Such "innovations" in mortgage underwriting are what sank Fannie and Freddie and the entire financial system in the first place. So here we go again.

The authors of this bill — Democrat Sen. Tim Johnson, who happens to be one of the top recipients of pre-crisis Fannie-Freddie campaign payola, and GOP Sen. Mike Crapo — ought to have their heads examined.

But give them the benefit of the doubt. Maybe, like Nancy Pelosi, they have to pass it to find out what's in it.

Perhaps they also don't know that fees collected from private mortgage securitizers will also fund another affordable-housing slush fund controlled by HUD, the agency that ran Fannie and Freddie into the ground with its escalating subprime mandates.
It's called the "Housing Trust Fund," and it, too, will pump subsidies into the "underserved" market.

Tellingly, none of these slush funds is subject to oversight from Congress and could easily be diverted for political schemes. Without such oversight, we can expect more misuse of taxpayer dollars.

Johnson-Crapo is a disastrous bill that doubles down on the mistakes that led to the financial crisis. Senate Republicans would be wise to abandon support for it.