The Forgotten Scandal
Whatever happened to Fannie Mae and Freddie Mac?
Last week, over the holidays, the House Ethics Committee quietly joined its Senate counterpart in finding that no members or staffers — or at least any it claimed jurisdiction over — broke congressional rules while obtaining “VIP” mortgages from Countrywide. This failed lender at one time provided a huge share of the questionable subprime mortgages issued by Fannie Mae and Freddie Mac, the government-backed mortgage lenders that were some of the first players to fall in the 2008 financial collapse.There can be no scandal if everyone is in on it...
Fannie and Freddie scooped up Countrywide loans and pooled them and others into mortgage-backed securities that were sold with an implicit taxpayer guarantee that eventually became explicit. The taxpayer guarantee allowed — indeed, encouraged — the lenders to be reckless, creating a moral hazard. In 2008, this set-up helped bring down the whole house of cards built by subprime mortgages.
But far from being dismantled, Fannie and Freddie have avoided insolvency, thanks to massive taxpayer bailouts. Talk of winding them down has faded on Capitol Hill and is being discouraged by the Obama administration. The two entities, along with the Federal Housing Administration, currently back some 90 percent of new mortgages. Talk about there being no consequences for failure.