Congress and the Countrywide Scandal"
June 18, 2008


Publication: Wall Street Journal

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Countrywide Financial Corp.'s "friends of Angelo" program provided sweetheart loans to key banking players in Washington, D.C. They included former Fannie Mae chief executive Jim Johnson, Senate Budget Committee Chairman Kent Conrad (D., N.D.) and Senate Banking Committee Chairman Christopher Dodd (D., Conn.).

The growing scandal surrounding the "friends of Angelo" loans (so-called by company employees, referring to Countrywide CEO Angelo Mozilo) should serve as a political wake-up call. Yet the Senate appears intent on pushing forward legislation, co-authored by Sen. Dodd, that would bail out the worst actors in the subprime mortgage banking industry.

Campaigning in Lancaster, Pa., on March 31, Sen. Barack Obama blamed Countrywide's CEO for "infecting the economy and helping to create a home foreclosure crisis." Yet Rep. Barney Frank (D., Mass.) and Mr. Dodd have crafted a bill to provide $300 billion in new taxpayer loan guarantees to Countrywide and others. The bill will allow troubled financial institutions to foist the riskiest mortgages in their portfolios onto the Federal Housing Administration (FHA) -- ultimately putting the American taxpayer on the hook for their bad bets.

Right now, nearly a third of Countrywide's mortgage portfolio is composed of an especially chancy loan called a "payment-option ARM." Also known as negative-amortization loans, payment-option ARMs allow borrowers to pay less than the interest owed each month, with the shortfall added to the principal balance. At set intervals the loans are recalculated, or recast, to be fully amortizing. The new payments -- based on current interest rates and a higher balance -- rise dramatically.

Hundreds of thousands of payment-option ARMs are scheduled to recast next spring, which everyone expects to cause a wave of delinquencies. The Dodd-Frank plan would allow Countrywide and others to cherry-pick their worst loans and roll them over to the FHA. The bill has been advanced in the name of homeowners, but it's all too clear who is being rescued.

The FHA cannot handle a Dodd-Frank wave of $300 billion "in-distress" loans. The loan volume alone will nearly double the size of the FHA. Yet last week the agency, floundering under its existing portfolio, announced $4.6 billion in new losses. These losses destroy 22% of the FHA's entire capital reserves and raise doubts about the agency's solvency.

On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA "is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans." Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their "highest-risk loans" to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.

Unsurprisingly, Countrywide executives have testified in support of expanded FHA refinancing. The company itself is a longtime and significant contributor to Messrs. Dodd and Frank. According to data from the Center for Responsive Politics' opensecrets.org, Mr. Dodd raised more than $6.3 million this election cycle -- 76% of his total war chest -- from banks, finance and real estate companies.

As for Republicans, most members of the Senate Banking Committee voted for the Dodd-Frank bill in exchange for reforms of Fannie Mae and Freddie Mac. The reforms, part of a deal brokered by Sen. Richard Shelby (R., Ala.), create a new regulator to establish tougher standards for the portfolio holdings of Freddie and Fannie.

While both of these agencies are in dire need of reform, this deal is still a mistake. By foisting this compromise on their Republican colleagues, Democrats are holding the reform of Fannie and Freddie hostage in order to increase bipartisan support for a bailout of reckless mortgage lenders.

Moreover, the bill creates a new tax that will create a permanent "affordable housing trust fund" -- a $500 million per-year slush fund designed to funnel money to left-wing activist groups like Acorn. Freddie and Fannie must pay into this fund even if they are not profitable, compromising their already overextended capital base.

In a free market, businesses take risks and reap either profits or losses. But markets only work when businesses are held accountable for their bad decisions. The message this proposed legislation sends to the market is clear: Big lenders like Countrywide who make bad bets can count on generous bailouts -- and responsible renters, homeowners and taxpayers who pay their bills on time can count on getting stuck with the tab.


A change we can believe in!

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Wow. . .nobody wants to defend the Dems on this?

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

There are so many freaking dirty hands in this mess I want to throw up! I know I read this last night, swore I posted something about it...it all got to be a blur after a while.

Yeah. . .I think it's crap! The ins and outs and who's doing what and when it all started. . .ad nauseum! But better to understand than to stick our heads in the sand.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

I'm thinking I might need to find a sand pit for my own sanity....

Noooo! Don't do that and leave me out here all by myself! It's lonely in here. . .nobody wants to talk about what's really going on. . .only about Sarah's bridge, or Obama's garden.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Ya know... if the Obama's had been paying for 'regular' lessons and camps for their kids like the rest of us they wouldn't have even needed a mortgage from Countrywide. They could've saved and paid cash! They certainly weren't living on beans and rice.

That would've been an example I could've believed in!

SouthCoastToday.com: GUEST VIEW: Twelve years of Republican rule produced no reform
So in summary, during 12 years of Republican rule no reform was adopted regarding Fannie Mae and Freddie Mac. In 2007, a few months after I became the chairman, the House passed a strong reform bill; we sought to get the administration's approval to include it in the economic stimulus legislation in January of 2008; and finally got it passed and onto the president's desk in July 2008. Twelve years of Republican rule produced no reform of Fannie Mae and Freddie Mac. We were able to adopt it in 19 months, and we could have done it much quicker if the administration had cooperated.

Change is much needed!!!

Did you read the article?

The right-wing accusation is that I was somehow responsible for the problems at Fannie Mae and Freddie Mac because I opposed regulation. The truth is that I opposed right-wing efforts to put Fannie Mae and Freddie Mac out of business, while simultaneously supporting strong regulation. That is, as opposed to the extremists who now dominate the Republican Party in Washington, I believed it was important to have a public mission for Fannie Mae and Freddie Mac to help keep down housing prices. But at the same time I realized that it was important to improve the regulation of both companies.

This is exactly why we are in this mess! Freddie and Fannie SHOULD have gone out of business. . .they made A LOT of unwise decisions. And now instead of failing, like they should, they are asking us to pour trillions of dollars into the system so these businesses don't start toppling like dominoes.

In a free market, businesses take risks and reap either profits or losses. But markets only work when businesses are held accountable for their bad decisions. The message this proposed legislation sends to the market is clear: Big lenders like Countrywide who make bad bets can count on generous bailouts -- and responsible renters, homeowners and taxpayers who pay their bills on time can count on getting stuck with the tab.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

WOOOOHOOOOO. . . . . . . . .












NOT!

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Yes I did read it. The lending had been going on for years years and years and the right wing look the other way When it became public, of course they had nothing to do with it.

Yes the lending had been going on since 1977, when the the Dems pushed the Community Reinvestment Act on Fannie and Freddie. That forced them to make risky, bad business decisions. When they started to fail the Feds lowered interest rates and pumped money into the market. This only postponed what we are seeing now. The government should have stayed out of it to begin with! You can't legislate social engineering.

There have been numerous posts in this forum explaining how, what and why this happened. Read them and then come back and talk about it once you understand it.

To help you get started here's the wikipedia link to the Community Reinvestment Act.

Community Reinvestment Act - Wikipedia, the free encyclopedia

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Thank you! I do understand. Do you think I dont understand because I think the right wing has more mud on thier hands? You stated your view and I gave you mine. I do agree with you that we as tax payers should not have to pay. But we will.

This is off topic

Are you better off than 8 years ago? Me no
Are you worried about this country? Me yes very very very
Can you really say that Palin is ready to run this country? No way in double hockey sticks!!

Explain why you think they have more mud on their hands. What specifically is it that they did that makes them MORE responsible?

Better off. . .yes
worried. . .very much so
Palin??? She would be the vp. I think she is about equally qualified as Obama.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

That's a bit nasty, isn't it?

Here's what I don't understand.

If your party is willing to go back to 1977 to find the point where this trouble allegedly began, and blame it all on the Democrats, where have the Republicans been? Why hasn't your party done anything to stop it since?

It has had the power to. It controlled both the White House and Congress at the same time after this period. Why didn't your party do something about this when they controlled both Congress and the White House? Accepting your argument about the things which lead to this crises, no party has ever been in a better position to stop it than yours. And it didn't.

I wasn't being nasty. I honestly thought she doesn't understand because she is arguing against herself. She says she supports the bailout, but then complains that there wasn't enough regulation. She is philisophically contradicting herself.

Sometimes I feel like some people haven't read all the posts and links that people have provided on here. . .but . . . .

Ok. . .it's complicated but I will try to explain it:

In 1977:

Under Carter, the Dems passed the Community Reinvestment Act:

A United States federal law that requires banks and thrifts to offer credit throughout their entire market area. So in other words, essentially puts a gun to the head of all lenders unless they issue mortgages to various minority groups, low-income folks, and both legal and illegal immigrants. Lenders out of compliance would be penalized as regulators would disallow any new business plan for mergers, acquisitions, or new products.

In 1992:

The regulator of Fannie Mae, OFHEO was critically weakened by the actions of Representative Barney Frank. The agency was required to get its budget approved by Congress, while agencies that regulated banks set their own budgets. That gave congressional allies an easy way to exert pressure.

In 1995:

As a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened . . .The revisions allowed the securitization of CRA loans containing subprime mortgages

In the late 1990's:

The then-CEO Franklin Raines relaxed lending standards at Fannie Mae to allow subprime borrowers to obtain loans. This was done under the direction of the Clinton Administration. Relaxing of Lending Standards

In 2003:

The Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

But because of partisan politics these regulations never happened. . .the Dems killed it. In fact,
Representative Barney Frank (D-MA) claimed of the thrifts "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

In late 2007:

The subprime mortgage crisis began. An increasing number of borrowers, often with poor credit, that were defaulting on their mortgages caused a precipitous decrease in demand for any mortgage-backed securities (MBS) that weren't guaranteed by Fannie Mae or Freddie Mac.

The housing bubble burst and Fannie and Freddie were left holding these defaulted notes.

In July 2008:

Representative Barney Frank (D-MA) and Senator Chris Dodd (D-CT), the Chairs of the House and Senate committees, respectively, with jurisdiction over housing, have proposed a plan using the FHA under which lenders that chose to take part would agree to reduce the loan amount and refinance the mortgage at a lower interest rate in return for a cash fee. Refinanced loans would be guaranteed by the FHA, and the lender would have no further credit exposure if the borrower subsequently defaulted. This means that if a refinanced loan later defaulted, the taxpayers would cover any losses.

When Wall Street got wind of this Frank-Dodd Plan investors got nervous and started selling off their holdings.

by August 2008:

Shares of both Fannie Mae and Freddie Mac had tumbled more than 90% from their one-year prior levels.

And now here we are. . .Sept 2008, being asked to bailout Fannie and Freddie to the tune of $700 billion dollars. This debacle rests almost soley at the feet of Barney Frank and Chris Dodd, both of whom have profited nicely with their cozy relationships with Wall Street. I found this and I think it sums it up pretty well:

The CRA promoted insanely low down payments and coerced lenders into giving mortgage loans to first-time buyers with unstable financing and incomes. Barney Frank (D-MA), as Chairman of the House Financial Services Committee and Chris Dodd (D-CT), Chairman of the Senate Banking, Housing & Urban Affairs Committee had ample knowledge of President Bush’s and Senator McCain’s concerns about the need for oversight reform for the financial markets, yet they chose to play the roles of obstructers instead of reformers. They had the power all along to affect reforms for the financial oversight process and they did nothing. Now, as we approach the presidential election of 2008 we witness two Democrat political opportunists trying feverishly to rewrite the history of their culpability with regard to the current financial crisis so as to hang the blame on the Bush Administration and the campaign of John McCain.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Yes very nasty.....

And that was my point. but they will never own up to being in the wrong. The right wing never does!!!!!!They are not being held accountable. The democrats just got the numbers again and they were left with a big big mess to try to clean up.


I have never said I supported the bail out.....I said that it is what is going to happen. You need to check the user names MY is Grumpy247 please find where I stated the bail out? If i did I must of been out with OGod the other night.

Fine. . .please respond to the timline I took the time to layout for you. . .respond to the CRA. . .Barney Frank. . .the revisions of 1995. . .the Frank-Dodd Plan. Please explain to me how this is not responsible for what we are seeing now. Or continue just to jump up and down pointing fingures saying they did it with nothing to back that up.

Btw. . .it's not the right-wing, it is what economists all over the country are saying.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

To answer that question is pretty simple. The housing market bubble hadn't burst yet. There was no eminent crisis. They attempted reform in 2003 but it was killed. . .mostly by Frank and Dodd.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Memo to Republicans: CRA Has Nothing To Do With the Current Problems


Hale "Bonddad" Stewart: Memo to Republicans: CRA Has Nothing To Do With the Current Problems


"Did Liberals Cause the Sub-Prime Crisis?" NO


http://economistsview.typepad.com/ec...berals-ca.html


Larry Kudlow is Dead Wrong: CRA Didn't Start the Meltdown


http://seekingalpha.com/article/7177...t-the-meltdown


Against all reason, Bachmann and others blame 1977 fair-lending law for adding to economic crisis


http://minnesotaindependent.com/1017...conomic-crisis

I'm thinking there is plenty of blame to be put on both parties. Noting that the first post was a Dick Armey opinion piece from the WSJ, what does the OP think about this article from David Corn of Mother Jones.


Foreclosure Phil

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Ana
The Republicans have been putting lipstick on a pig for 8 years. Is a pitbull wearing lipstick an attempt to keep us from noticing the pig?

sharkiz1

I'm only about half way through reading those links. Thanks for posting them. I understand what they are saying about the CRA not causing the crisis. That isn't what I was necessarily saying. The real problem came after 1995 when the revisions made, under Clinton, allowed these sub-prime motgages to be securitized. That's where Fannie and Freddie were profiting. . .in the trading of the mortgages. However, without the CRA, there would have been no sub primes to trade. So, the cause? No. But without it it wouldn't have happened. . .it layed the groundwork.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

I understand the argument. . .BUT. . .if the government was to stay out of the market in the first place there wouldn't have been this mess to begin with. Gramm lightened regulation. This allowed the trading of these sub-primes to run rampant. I would argue that when businesses make bad decisions, they should fail. It's like natural selection, kind of Darwin's law applied to economics. If these corps are making risky, bad decisions, and profitting personally from it, they should go down in flames. Why should we (government) be trying to step in and prolong the death? If their was no legislation encouraging sub-prime mortgages, they wouldn't have existed. If there was no legislation securitizing them there wouldn't have been a secondary market for them. If there was no legislation insuring these sub-primes, companies would have considered the obvious risk in them and they wouldn't have been so easily traded.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Damn! Nobody wants to talk about the truth? Why am I not surprised?!

You know, people want to yell and scream and point fingers. But nobody wants to discuss the facts! If something doesn't support your illusion of the truth, then you are out. . . .just deny reality. I would competely support either party. . .if it was involved in truth. The fact that McCain seems more aligned with that doesn't seem to make any difference. If you want to talk about promises go back and look at what the Dems promised when they took over Congress in 2004. Did they make good on any of those?

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm

Please check to see who messages you are reading. I never said that I supported the bail out. I said that we are going to get stuck bailing them out. I know both parties are at fault. That is the reason why I posted! The right wing when they had control did nothing!!! They are the ones pointing there fingers with thier right hand and cover thier a$$ with left. That is why I said they have more mud on thier hands. They had the numbers to stop them and did nothing.

I honestly don't know what is right or wrong with the economic situation of this country. I only posted those links to show you that not everyone agrees that the CRA started all this. I only posted at all because you seemed frustrated that no democrats wanted to talk about this. I only have limited time to be on here and therefore cant post on every thread. And from the PM's I am receiving, I think a lot of the democrats on here are frustrated with the smoke and mirrors from a couple of the posters here. These people who cant hold a decent conversation or even try to understand that there is at least 2 sides (usually lots more than 2) when it comes to politics. These people know who they are so I wont point my finger at them personally. I only come here to read the views and try to understand and contribute if I have time. I try not to take it personally. Learned my lesson a few months ago. I have learned to back slowly away when I feel frustrated.

I didn't say that you supported the bailout, in fact, I said that I thought you were against it, then got jumped on for saying that. I know both parties have some fault in this. I asked why you thought the Repubs were more responsible? And the answer I got was beacuse they didn't do anything. Which isn't completely true:

In 2003:

The Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

But because of partisan politics these regulations never happened. . .the Dems killed it. In fact,

Representative Barney Frank (D-MA) claimed of the thrifts "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

I understand why both sides are working quicky to support a bi-patisan bailout plan, because they are all trying to protect their cronies on Wall Street. But to imply that the Repubs have more mud on their hands just isn't inline with the facts. Yes, Gramm has mud on his hands, but Frank and Dodd are getting full body mud baths. And yes, WE get to pay for them.

__________________
"No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?"
- George Orwell Animal Farm