Former Fannie Mae chief: Don't blame homeowners for bust
Franklin Raines, who left Fannie in 2004, says investors, not homeowners or the government, are responsible for the crisis. Others disagree, and some blame Fannie Mae.
Investors, not homeowners, were responsible for the real-estate crash, according to the former chief executive of Fannie Mae.
Franklin Raines, who left Fannie Mae in 2004, made his comments last week at a National Community Reinvestment Coalition challenge.
He challenged the contention that the crisis was caused by homeowners who bought when they shouldn't have or bought more home than they could afford. Government policies to encourage homeownership also were not to blame, he said.
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"This has nothing to do with the average American family wanting to own a home," Raines said, according to The Wall Street Journal. "This was rank speculation that was being financed out of Wall Street with no questions asked. That is what caused this crisis. Blaming people — ordinary people — who tried to own a home for this crisis is simply wrong."
Numerous politicians, pundits and organizations have sought to place the blame for the crisis on various players: homeowners, lenders, the government, Fannie Mae and others. U.S. Housing Update lists 10 reasons for the bust, including speculators and loose lending.
A Financial Crisis Inquiry Commission report issued in January 2011 blamed "widespread failures in financial regulation; dramatic breakdowns in corporate governance; excessive borrowing and risk-taking by households and Wall Street; policymakers who were ill-prepared for the crisis; and systemic breaches in accountability and ethics at all levels."
But commission member Peter Wallison wrote a dissent casting blame on Fannie Mae. He wrote in an op-ed in The Wall Street Journal: "Far from being a marginal player, Fannie Mae was the source of the decline in mortgage underwriting standards that eventually brought down the financial system. It led rather than followed Wall Street into risky lending."
Another speaker at the conference, Richard Cordray, director of the Consumer Financial Protection Bureau, took issue with the assertion that the Community Reinvestment Act, passed in 1977 in an effort to make credit available for home purchases in low-income neighborhoods, was the cause of the bust. He said: "Some have argued that the Community Reinvestment Act is responsible for the mortgage crisis. We disagree. Sound underwriting and reasonable access to credit are both worthy goals and they can and should go hand in hand as we build stronger communities."
What do you think? What role, if any, did homeowners and government policy to encourage homeownership have in causing the bust?
As with free mortgages... IF IT IS TOO GOOD TO BE TRUE, WELL IT IS!!!!
You all got played into bankruptcy with our government.. NEVER TRUST A BANKER! These GLOBAL capitalist bankers now control the world. AUSTERITY and third world status HERE WE ARE!!! Enjoy the high unemployemnt, no retirement, and lost savings. Your global bankers (Federal Reserver) THANK YOU for your funds!!!!!
Hmmm welcome to N.W.O no that is not the new world order N.W.O means Nazi,World,Order not what they want you to think New is not Nazi is
look at how the Nazi did things and look at how or Government is running same thing as them different time fram
The thing most people miss here is that the big banks played them into bankrupsy, forced the politicians to promote globalization which caused the lost of jobs and enslaved us all in debt. Thus, with globalization, every American will have to accept any low paying job, with less benefits, etc for maximum profit by corporations and banks.
Banks now control the governments and the world with all those lovely customers.
You all got played and you all let it happen by not preventing CAMPAIGN CONTRIBUTIONS by the ultra rich corporations and banks, and NOTcontrolling government debt to these pr*cks.
You all made your beds now sleep in them.
Most appear to overlook the fact that many people could well afford their house payment - UNTIL - they lost their job. The real problem was the downturn in the economy. The Burst didn't cause the recession. The recession caused the Housing Problems.
Had people kept their jobs - they could have made their house payments.
I think the mortagage crisis is caused by banking and wall street greed. But what I don't understand is that the government bailed out the big banks! But don't help the people refinance their loans at our low interests because the the mortagage is underwater? It's under water because of the the lost in value and the lost of jobs in this economy. I didn't buy to flip! But how can I get these lower rates?
"He challenged the contention that the crisis was caused by homeowners who bought when they shouldn't have or bought more home than they could afford."
who does he think the investors sold the home to?
Let me try to explain this to people that have no idea. You had a system where the person who was in charge of rating mortgage backed securities was also the same person getting paid to help put the deal through.
Let me give you an example. When you buy a home an appraiser sets the value and gets paid a small fee. What would happen if that appraiser instead of getting a small fee, that appraiser was getting a third of the house price along with the same as the owner and the bank.
In all cases that would be fraud because the person setting the price pushed the price up. This is called price fixing.
Now instead of punishing the greed of Wall Street policies and practices they get 900 more billion to get bailed out by Bush; whose family had connections to the people doing the price fixing. The bonding people were getting as much as the banks for rating mortgage bonds with an inflated price. On the average the bonding companies were getting as much money as the banks and in a lot cases more.
Then you have people like your self who worry about setting aside money for unexpected expenditures, when the policy was set up for a few to make a lot of money and then for the system to collapse.
It was not the homeowner or the community reinvest act it was simple greed of few who got away with murder and helped kill our country.
Our home purchased in 2007 is worth only 80% of it's original purchase price. Over half of the homes in our town home community were sold to investors who purchased them when they were at 80% of our purchase price. Some of these investors have sold fearing further decline in their property value thus causing a decline in overall property values. So I agree partly with the Fannie Mae Chief that investors fueled this decline, but greed played a large part in this process. I've been a Real Estate Broker for 24 years and can't recall so many cases of mortgage fraud, 100% loans with ARM rates and lack of proper credit and income verifications. When I started in the business first time homebuyers had to attend a homeownership education class, there was Ameri Dream and Nehemiah to help with downpayment assistance, you could receive a gift from a relative and there were downpayment and low interest assistance programs through State and Local Housing Authorities. In all my 24 years I can only recall 8 families losing their home through foreclosure and the minimum credit score requirements were 550 FHA and VA. The Banks need to lighten up and get back to loaning money again by getting back to the basics. When you have to put a little time and effort in to purchase your home you appreciate it more and are less likely to walk away when the going gets tough.
Goodnight all! It was fun. Thanks to all who did not respond and kept on the subject!
It was many factors that crashed the market and many are to blame but, sitting around blaming people is not going to solve this problem and it is going to take many years to get back on track.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.