When housing advocates sell out bad things happen

I’ve been complaining about it for years,  Now that the New York Times has said it maybe folks will take stock.

The housing advocacy community sold out to Fannie Mae.

They stopped doing their jobs to hold this crucial housing institution accountable for meeting its obligations to provide for the housing needs of low and moderate income Americans. Now look at the fix we are in.

On July 13, Julie Creswell wrote in a NYT story

Mr. Johnson [then president of Fannie Mae] ramped up the influence of its charitable arm, the Fannie Mae Foundation, by doling out money to thousands of nonprofit groups and similar organizations. (Mr. Johnson was compelled to step down as the head of Senator Barack Obama’s vice-presidential search team last month after he was criticized for receiving mortgages on favorable terms from Countrywide Financial.)

Fannie and Freddie also forged alliances with various interest groups, including affordable-housing advocates that previously criticized the companies for not doing enough for low- and middle-income homeowners.

The silence of housing advocates related to Fannie Mae has been deafening and perplexing if one does not know what the Fannie Mae Foundation was up to.  Consider the facts.

Congress directed the U.S. Department of Housing and Urban Development (HUD) to develop a set of national lending performance goals for the GSEs. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 requires HUD to establish three affordable housing goals for each of the GSEs. The Act directs HUD to recognize “the ability of the enterprises [GSEs] to lead the industry in making mortgage credit available for low- and moderate-income families.”

These housing goals are intended to measure and encourage the GSEs’ support for very low-, low-and moderate-income lending as well as lending in underserved geographic areas. Congress gave HUD the responsibility of monitoring and reporting on GSE performance in meeting these goals.

Congress clearly intended the GSEs should use their power to profoundly influence the availability of home mortgage credit to these targeted homebuyers. Section 1302 of the Act provides that the GSEs have an “affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families.”

What the GSEs were expected to do was to evaluate the creditworthiness of these underserved populations and come up with a safe and sound lending product that should have been the alternative to the irresponsible subprime and predatory lending that instead emerged.

Based on their advocacy and oversight in related (non GSE) housing issues that were of far less consequence one would have expected housing advocates to have followed HUD’s oversight of the GSEs and their proposed housing goals aggressively.  But HUD’s pitifully weak affordable housing goals for the GSEs and the failure of HUD to require compliance with the HUD goals drew hardly any attention from the housing advocacy community. Fannie Mae even got away with taking credit for buying a bunch of awful subprime mobile homes loans from the now failed, and infamous, lender Conseco and claiming these loans toward meeting the HUD affordable housing goals. These loans ultimately suffered huge default rates.

Let me emphasize that the goal was not to have the GSEs engaged in irresponsible subprime lending but to use their unique position to evaluate loan performance of these underserved populations and come up with a lending product that was safe and sound and get it into the market as an alternative to irresponsible subprime lending.  But Fannie Mae never even tried.  Instead they bought up the worst, most irresponsible subprime loans available and claimed them as credit toward meeting their HUD lending goals.

Fannie Mae got a free ride from the housing advocacy community for two reasons;

  1. Fannie Mae become the darling of Democrats by giving jobs to lots of predominate Democrats.  Advocates seem to always cut their Democratic friends too much slack; and
  2. More importantly Fannie Mae, through its Fannie Mae Foundation passed out money to housing advocates like candy. Advocates took the money and convinced themselves they would not let the money corrupt them. Then they rationalized that there were better things to do than to keep Fannie Mae’s feet to the fire over affordable housing goals.

In hindsight it is plain that the lack of attention to Fannie Mae and Freddie Mac permitted the GSEs to ignore the lower income home lending markets which, in turn, contributed greatly to the rise of subprime and predatory lending.  Private subprime lenders moved in and filled the vacuum left by the failure of the GSEs to meet even the modest affordable housing goals established by HUD.

Advocates knew this was happening but almost all chose to ignore it for fear of jeopardizing the funds from the Fannie Mae Foundation.

I saw this first hand as I tried to get support to press Fannie Mae to respond to a report that my organization prepared that was highly critical of Fannie’s lending in lower income neighborhoods, to minority borrowers and to lower income borrowers in Dallas.  I could get no support from traditional housing advocate allies. Many were not shy in telling me that the reason was their funding from the Fannie Mae Foundation.

Fortunately, the Fannie Mae Foundation is out of business (or at least sort of) in the wake of the departure of a wave of chief executives due to financial scandals at Fannie Mae.  Fannie Mae continues to provide funds to housing advocates through direct corporate giving however.

Tragically, the housing advocacy community has never owned up to the consequences of their willingness to withhold their scrutiny of this critical player in housing finance for the sake of some grant funds.

1 Comment

  1. It is incredible to see just how out of touch our main stream media is.

    I have been researching the Mortgage predatory lending market for some time now, gathering a whole bunch of dirt on Angelo Mozilo, David Sambol, Kurland and others at Countrywide Home Loans. I uncovered more than a little dirt on Bank of America and its CEO Kenneth Lewis. But what moved me the most was coming across this Lone Ranger like character named David Merritt.

    This is a guy who got suckered into one of those Countrywide Predatory loans. He and his wife are first time home buyers who wanted to put 5 to 10 % down on their $729,000 home in Silicon Valley California – 2 miles from Yahoo headquarters, 4 from google and 5 from Apple.

    With just 2 days to remove their loan contingency, and with at least two other lenders ready to sell them a relatively decent mortgage, Countrywide talked them out of going with the competition by presenting a 1 to 3 percent, FHA Good Faith Estimate and declared: “if you can find someone to beat this loan, then go with them and we’ll pay the closing costs.”

    Countrywide staff were trained on how to determine how much knowledge a home buyer had, and they knew that the Merritts were suckers to be taken. Once they fired the other lenders and committed themselves to Countrywide, the Merritts found themselves locked into a 100% financing Pay Option ARM and HELOC which was destined to charged them over 2 million dollars. Countrywide had a policy of talking buyers out of putting down payments, and convincing them that they would give them a loan that was better. In fact, they would always tell home buyers that No One Could beat them and the truth was that they did beat everyone at the application stage in order to remove all the competition, but they left out that by the time the home buyer was closing escrow, most competitors would have done better.

    The Merritts signed a loan that was charging twice as much as the average lender. What is more is that they signed a loan which Countrywide assigned Mortgage Electronic Registration System as a lender. As it turns out, MERS was designed to be a front company which allows: 1) Note holders to hide from public scrutiny; 2) the duplication of one loan note that could be sold off to 2 or more investors or mortgage backed security pools: 3) evasion of paying local recorder fees; 4) Overriding state legislatures recording the laws on recording liens, beneficiaries and holders in due course; 5) attacking Public Policy in regards to its goals of protecting consumers and lenders from fraud via recording laws; and last, but not least, 6) being a conduit for billions of dollars to pass right by Uncle Sam and into Cayman or Canadian banks where no federal taxes can touch it.

    This is how Countrywide rose to the top. And they intentionally targeted elderly, minorities and unsophisticated first time buyers.

    Now in July 2008 Bank of America bought Countrywide out for 2 billion dollars. A company with assets that exceeded 20 billion, and servicing machine that churned out billions more.

    Bank of America went to all the states Attorneys Generals and asked them to bring lawsuits on behalf of their state citizens against Countrywide and to already agree to cut a sweet settlement deal with Bank of America. This was a strategy to persuade that Public that BofA was sincere about cleaning up the mess Mozilo and cronies created. But what is left out is that they are also trying to cut off home buyers ability to charge BofA with the predatory loans of Countrywide.

    Behind the scenes, BofA has been supporting Countrywide since 1969. It has always been in the predatory loan business, but through other front companies. For the longest, evidence shows, Kenneth Lewis was very close allies with Mozilo and planned with him to defraud Americans out of their home equity.

    It is so strange to see so many Americans enslaved to the Banking and Finance gangsters and not even know it, or if they do, just accept it.

    David Merritt is literally one of the 21st Century modern epics “David versus Goliath.” And all the has is a little sling and a rock against Goliaths billion dollar war armor. Check out some of his thoughts on many issues at wordpress.com/insightbeyondsight, but the 9th Circuit Court of Appeals has before it Merritt v. Countrywide, BofA, Wells Fargo et al, Docket No 09-17678 where he has charged straight at these Greedsters with RICO and other federal violation. And in Santa Clara Superior Court Merritt v. Mozilo et al No. 109CV159993.

    He is actually looking for other victims who have deeds of trust assigned to MERS and he wishes to help in anyway possible to fight these folks offensively , he prefers, but he has enough information to help defensively as well. Lawyers from around the country taps into this Big David. So circulate the word.

    Mark Doyle

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