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The buzzards are coming home to roost!

"Christine Seib
The former bosses of Fannie Mae and Freddie Mac have blamed regulators and politicians for the near-collapse of the giant US mortgage lenders.

In written testimony submitted to a hearing of the House of Representatives' Oversight and Government Reform Committee, the four former chief executives of Fannie Mae and Freddie Mac said that the lenders were pressured by Congress to ensure that lower-income families could buy homes.
At the same time, their regulator, the Office of Housing Enterprise Oversight, which later became the Federal Housing Finance Agency, did little or nothing to curb their increasing exposure to riskier loans, the former chief executives claimed.

Fannie Mae and Freddie Mac own or guarantee $5,300 billion of the $12,000 billion (£8,124 billion) US mortgage market and accounted for 70 per cent of the home loans sold this year.

The lenders were forced into government control on September 6 after announcing huge quarterly losses. Freddie Mac has asked for almost $14 billion in government money to stay afloat. Fannie Mae is also expected to request assistance from taxpayers.

Franklin Raines and Leland Brendsel were ousted as heads of Fannie and Freddie, respectively, after accounting scandals, while Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac lost their jobs when the lenders went into government control.

Mr Raines said: "It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risks its regulator made no visible effort to enforce any limits".

Mr Mudd pointed out that, even when the lenders were seized, they were in full compliance with their regulator's capital requirements.

Fannie and Freddie had traditionally backed the safest US loans — those on a 30-year fixed rate with a 20 per cent deposit — but, as Wall Street's appetite for securitised mortgages grew, the lenders lowered their standards to attract even more business.

Republicans have blamed the administration of former President Bill Clinton for encouraging Fannie and Freddie to make riskier loans to promote home ownership. But Democrats have said that the Wall Street banks were responsible for pushing a decline in lending standards.

Both lenders have been forced to hand over evidence concerning the decisions they took on mortgage risk as part of the committee's investigation into their troubles."

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Interesting to see the former bosses of Mac/Mae rat out their old co-conspirators in Congress. Rather like an old Law and Order piece.
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quote:
Originally posted by Howard Roark:
Republicans have blamed the administration of former President Bill Clinton for encouraging Fannie and Freddie to make riskier loans to promote home ownership. But Democrats have said that the Wall Street banks were responsible for pushing a decline in lending standards.


I'd expect the likely glut of lawsuits filed on behalf of people who had undocumented income and bad credit would have driven them in that direction. A less cynical person would answer "all of the above".

Once one bank drops its lending standards, the others follow along, like lemmings, to remain competitive.

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