There's That Name Again

Still Oblivious To Meltdown's Cause

The misery won't end soon, because the federal government is repeating the very same mistakes that created the housing nightmare in the first place — including pushing banks to make home loans to people who can't repay them, and expanding Fannie Mae's and Freddie Mac's role in housing markets even as their losses mount.

Have we learned nothing? This didn't happen overnight. The causes of our current meltdown go back to the early 1990s, when President Clinton first made it official U.S. policy to encourage lending to what were called "low- and moderate-income borrowers."

By 1994, Clinton's "National Homeownership Strategy" started a nationwide push to lower mortgage-lending standards to get more poor people into homes. But the question arose: How could you force banks to lend to people who couldn't pay them back?

The White House answered by using the 1977 Community Reinvestment Act — originally intended to ensure that banks lent in communities where they had branches — to force banks to make loans to minorities and the poor. To fund it all, the White House turned to Fannie Mae and Freddie Mac to build a massive, multitrillion-dollar market for U.S. subprime mortgages.

In November 2000, HUD Secretary Andrew Cuomo issued a press release trumpeting the government's reckless plans: "HUD Announces New Regulations to Provide $2.4 Trillion in Mortgages for Affordable Housing for 28.1 Million Families."

Despite repeated efforts in Congress by Republicans to reform Fannie and Freddie in 2001, 2003, 2004, 2005 and 2007, powerful Democrats refused to cooperate. And Fannie and Freddie continued to feed the housing bubble with trillions of dollars in publicly guaranteed money — until it was too late...

Last August, the Congressional Budget Office predicted that Fannie and Freddie could cost us $389 billion over the next decade. But others say the bill could be as much as $1 trillion. Yet neither Fannie nor Freddie was addressed in the so-called financial reform bill that President Obama just signed.