At the ugly heart of the ongoing economic crisis are government-created mortgage giants Fannie Mae and Freddie Mac. So the fact that they are untouched in the financial overhaul Congress is considering suggests lawmakers are not very serious about “reforms” that supposedly will prevent a new meltdown.
When the housing market was booming, the mortgage giants relaxed standards for borrowers in the name of “affordable housing” and “fairness.” Borrowers were given much larger mortgages, at adjustable rates, than they were likely to be able to repay. When rates started adjusting upward, many lost their homes. “Fairness” and “affordable housing” had led to “bankruptcy,” and the people those relaxed lending standards were supposed to help were harmed the most.
But the country as a whole suffered, too, as the housing market collapsed. Many people who continued paying their mortgages found their houses were suddenly worth far less.
That certainly did not square with Democrats’ insistence a few years earlier that there should be more federal efforts to promote “affordable housing.” Back in 2003, U.S. Rep. Barney Frank, D-Mass., declared, “Fannie Mae and Freddie Mac are not in a crisis. … The more people conjure up the possibility of serious financial losses to the Treasury, which I do not see — I think we see entities that are fundamentally sound financially — … but the more pressure there is there, then the less I think we see in terms of affordable housing.”
Yet now, even when it is clear that Fannie Mae’s and Freddie Mac’s policies were disastrous, Congress is going to reform many aspects of the financial system except Fannie Mae and Freddie Mac. Instead, they will continue getting taxpayer bailouts, which so far total $145 billion.