Today, four former CEOs of Fannie Mae and Freddie Mac testified before the House Oversight Committee on how their companies’ actions may have “contributed to the ongoing crisis.” Blaming Fannie, Freddie, the Community Reinvestment Act (CRA), and low-income people is one of conservatives’ favorite talking points. In September, Rep. Michele Bachmann (R-MN) touted an article criticizing the CRA for pushing “Fannie and Freddie to aggressively lend to minority communities.”
But as the Wonk Room’s Pat Garofalo points out, at the beginning of today’s hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a conservative myth. Later in the hearing, Rep. Edolphus Towns (D-NY) asked the four CEOs whether poor people caused the current financial crisis. All said “no”:
Richard Syron, former Freddie CEO: “I would think that it wasn’t mostly trying to do things for poor people.”
Daniel Mudd, former Fannie CEO: “[W]hen the market goes down, it’s the folks who are the closest to the margin who — who get hurt first and longest every time.”
Leland Brendsel, former Freddie CEO: “I cannot recall ever being forced to make — or to purchase a mortgage loan that I didn’t feel, as a matter of policy at Freddie Mac, was a good mortgage loan, a sound mortgage loan, and an attractive mortgage loan for the homebuyer or the owner of an apartment building.”
Franklin Raines, former Fannie CEO: “I do not believe that poor people are the cause of the current financial crisis. … Most of the losses, as I read the record, have come on mortgages that were made to middle-class and upper-middle-class people, not to poor people.”
Congress passed the Community Reinvestment Act in 1977, requiring banks “to lend throughout the communities they serve.” In the 1990s, greater mortgage lending to lower-income households by CRA-coveed banks increased the homeownership rate for lower-income and minority families. As CAP scholar Tim Westrich has written, “The real culprits in the mortgage mess are non-bank mortgage companies — not covered by CRA — that originated the lion’s share of bad mortgages at the heart of the crisis. They made an estimated 50 percent of subprime loans in 2005.”
Numerous other scholars, including Nobel-winning economist Paul Krugman and Center for Economic and Policy Research co-director Dean Baker, have also explained that while Fannie and Freddie made many bad decisions, they weren’t primarily to blame for the financial crisis. At a hearing in September, former top government economic experts agreed that conservatives were pushing myths, rather than facts.
REP. TOWNS: Let me just begin by saying, since the crisis started — I just want to ask all of you — we have heard some people claim that poor people are to blame for this. That’s the problem, they’re saying.
And the way this argument goes, the federal government forced the banks to give mortgages when they shouldn’t have — this is what they say — to people who were not credit-worthy, then forced Fannie Mae and Freddie Mac to buy up those bad mortgages.
You are the experts here. Is that the main reason that Fannie Mae and Freddie Mac had to be taken over, because they made too much financing available to low-income homeowners? Is that the problem?
Let me just run right down the line.
Mr. Syron? [...]
SYRON: I would think that it wasn’t mostly trying to do things for poor people. I do think that we have to realize that we need a balanced housing program. And I personally am in favor of, in a progressive sort of way, good rental housing that people can have while they’re getting ready to become homeowners.
Thank you, sir.
TOWNS: Mr. Mudd?
MUDD: I would just observe, Congressman, that when the — when the market goes down, it’s the folks who are the closest to the margin who — who get hurt first and longest every time. And that’s what’s produced the great human tragedy of this, which is the crisis of foreclosures in a lot of the towns and cities across the — across the country. Fannie Mae’s business was to be able to provide lending all across — all across the spectrum of affordable housing. And as part of that, you had — you had individuals who are in those communities — and now — now, and during my time — companies doing everything it could to try to stem that wave of foreclosures and difficulty in those communities.
TOWNS: Mr. Brendsel?
BRENDSEL: As I testified, I was CEO of Freddie Mac for a very long, long period of time. I cannot recall ever being forced to make — or to purchase a mortgage loan that I didn’t feel, as a matter of policy at Freddie Mac, was a good mortgage loan, a sound mortgage loan, and an attractive mortgage loan for the homebuyer or the owner of an apartment building.
TOWNS: Mr. Raines?
RAINES: I do not believe that poor people are the cause of the current financial crisis, nor do I believe defaults on the loans that they might hold is the cause.
They have too — much too small a share of the market. Most of the losses, as I read the record, have come on mortgages that were made to middle-class and upper-middle-class people, not to poor people.
And I do not believe that Community Reinvestment loans are the cause of the concern. And, apparently, neither does the comptroller of the currency, nor the chairman of the Fed, each of whom have said that the Community Reinvestment Act requirements had no role in the current financial crisis.