Research Briefing

Fannie Mae, Freddie Mac, And Barney Frank

Have A Long Sordid History

BARNEY FRANK SAID YESTERDAY FANNIE MAE AND FREDDIE MAC SHOULD BE ABOLISHED

Rep. Barney Frank Calls For Fannie And Freddie To Be Abolished. “Fannie Mae and Freddie Mac should be abolished rather than reformed as part of the Obama administration’s planned overhaul of the government’s role in housing finance, Rep. Barney Frank, chairman of the House Financial Services committee, said on Tuesday.” (JoAnne Allen, “Democrat Frank Says Abolish Freddie And Fannie: Report,” Reuters, 8/18/10)

• Frank: “They Should Be Abolished. . . Only Question Is What Do You Put In Their Place. . .” (JoAnne Allen, “Democrat Frank Says Abolish Freddie And Fannie: Report,” Reuters, 8/18/10)

Frank Says In The Future, Housing Subsidies Should Be Counted In The Budget.  “‘There is no more hybrid private-public,’ the Massachusetts Democrat suggested. ‘If we want to subsidize housing then we could do it upfront and let the budget be clear about that.’” (JoAnne Allen, “Democrat Frank Says Abolish Freddie And Fannie: Report,” Reuters, 8/18/10)

BUT HE RECENTLY SAID THEY HAVE ALREADY BEEN ABOLISHED AND FIXED

Earlier In The Week He Had Said There Was “No Urgency” Addressing Fannie And Freddie Since They Were Already Abolished By Government Takeover. “I asked the question that I hear from so many Americans: Why hasn’t the government tried to unwind and replace Fannie and Freddie, which have so far cost taxpayers $145 billion, more than any other bailed-out firm? His response was counterintuitive — and as unsatisfying as it may sound, he’s right ‘There is no urgency,’ he said. Come again? We’ve already abolished Fannie and Freddie,’ he said, referring to the government takeover. ‘Yes, we waited too long to fix it. But the money is not being lost by anything they are doing now.” (Andrew Ross Sorkin, “2 Zombies To Tolerate For A While,” The New York Times, 8/17/10)

Frank Said Problems Fannie And Freddie Were Causing “Were Stopped When (Former Treasury Secretary Henry) Paulson Put Them Into Conservatorship.” “On mortgage giants Fannie Mae and Freddie Mac, Frank countered criticism that their reform has been left out of the picture, noting that federal conservatorship was the most drastic reform that has been done so far. ‘Fannie and Freddie were the first major parts of the financial system to be drastically changed,’ Frank said. ‘Fannie Mae and Freddie Mac were already drastically changed by being put into conservatorship more than anything else in the system,’ he said. ‘The problems they were causing were stopped when (former Treasury Secretary Henry) Paulson put them into conservatorship.’” (“US’s Frank: Fin Reg Reform To Be Signed ‘Well Before’ July 4,” iMarketNews.com, 5/20/10)

EVEN THOUGH THEY ARE STILL LOSING MONEY AND SEEKING MORE TAXPAYER BAILOUTS

Freddie Mac Had A $4.7 Billion Second Quarter Loss. “Mortgage finance giant Freddie Mac said Monday that its loss in the second quarter narrowed but that taxpayers would still be on the hook for the foreseeable future. Freddie’s loss in the three-month period ended June 30 was $4.7 billion, compared with $6.8 billion in the first quarter.”  (Zachary A. Goldfarb, “Freddie Mac Narrows Loss, But Firms Needs More Government Aid,” The Washington Post, 8/10/10)

• “As A Result Of The Losses, Freddie Will Need $1.8 Billion In Government Aid On Top Of More Than $60 Billion Already Provided By Taxpayers.” (Zachary A. Goldfarb, “Freddie Mac Narrows Loss, But Firms Needs More Government Aid,” The Washington Post, 8/10/10)

“Fannie Is Facing A Similar Challenge. The D.C.-Based Firm Reported A $1.2 Billion Loss Last Week.” (Zachary A. Goldfarb, “Freddie Mac Narrows Loss, But Firms Needs More Government Aid,” The Washington Post, 8/10/10)

• Treasury Will Provide Additional $1.5 Billion To Close Fannie Mae’s Second Quarter Deficit Bringing Total Aid Provided To $86.1 Billion. “On June 30, 2010, Treasury provided to us $8.4 billion to cure the company’s net worth deficit as of March 31, 2010. As a result of this draw, the aggregate liquidation preference of the senior preferred stock increased from $76.2 billion to $84.6 billion as of June 30, 2010. It will increase to $86.1 billion upon the receipt of funds from Treasury to eliminate the company’s second−quarter 2010 net worth deficit.” (SEC Filing, “Second Quarter 2010 8-K SEC Filing,” Fannie Mae, 8/ 5/10)

FRANK’S CHANGE OF HEART FOLLOWS DECADES OF ENCOURAGING

FREDDIE AND FANNIE RECKLESS BEHAVIOR

Frank Consistently Insisted That Fannie And Freddie Were In “Good Shape” And “Not Facing Any Kind Of Financial Crisis.” “But his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that ‘these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.’ When the White House warned of ‘systemic risk for our financial system’ unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.” (Jeff Jacoby, Op-Ed, “Frank’s Fingerprints Are All Over The Financial Fiasco,” The Boston Globe, 9/28/10)

Since The Early 1990s, Frank Pushed Fannie And Freddie “To Break Its Rules, Lower Its Standards, And Buy Risky Loans.” “To hear Barney Frank tell it, he bears no responsibility for the housing bubble or for the failure of Fannie Mae and Freddie Mac. But his record as a member of the House Financial Services Committee tells a different story. As far back as 1991, Frank was pushing Fannie Mae to break its rules, lower its standards, and buy risky loans.”  (Bruce Feirstein, “100 To Blame: Barney Frank, Richard Fuld, And More,” Vanity Fair, 9/15/09)

In 2003, Frank Said Fannie And Freddie Were Not “Facing Any Kind Of A Crisis.” “I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury.”  (Committee on Financial Services, U.S. House of Representatives, Hearing, 9/10/03)

• Rep. Barney Frank: “So Let Me Make It Clear, I Am A Strong Supporter Of The Role That Fannie Mae And Freddie Mac Play In Housing, But Nobody Who Invests In Them Should Come Looking To Me For A Nickel--Nor Anybody Else In The Federal Government.” (Committee on Financial Services, U.S. House of Representatives, Hearing, 9/10/03)

Vanity Fair: “Barney Frank Believed—And Still Believes—That Home Ownership Is A Fundamental Part Of The American Dream. We All Do. But To Say He Played No Role In The Housing Bubble And Bears No Responsibility At All For The Failure Of Fannie Mae And Freddie Mac Is, Fundamentally, Wrong.” (Bruce Feirstein, “100 To Blame: Barney Frank, Richard Fuld, And More,” Vanity Fair, 9/15/09)

President Bill Clinton Admitted His Policies Regarding Fannie Mae, Freddie Mac Paved Way For Current Financial Crisis. “Clinton ... said that Democrats weren’t entirely blameless, stating that they should have highlighted problems with Fannie Mae and Freddie Mac and ‘tried more aggressively to regulate derivatives.’ He also acknowledged that there was possible danger in his administration’s policy of pressing Fannie Mae, the mortgage company, to lower its credit standards for lower- and middle-income families seeking homes. ‘I think, through the lens of this, it looks like that was true,’ Clinton said.” (Walter Alarkon, “Clinton Rejects Blame For Financial Crisis,” The Hill, 9/25/08)

• And Says That “Responsibility” For The Fannie And Freddie Crisis Rests With Democrats. ”I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress, or by me when I was President, to put some standards and tighten up a little on Fannie Mae and Freddie Mac.” (Seth Colter Walls, “McCain Ad Uses President Clinton To Bash Democrats,” The Huffington Post, 10/31/08)