Five things I didn't know about Fannie Mae and Freddie Mac in the US economic kerfuffle

Doing research on key actors in the economic kerfuffle in the U.S., I came across items of interest that may or may not have anything to do with what’s happened. So here are 5 curiosities, mostly having to do with Fannie Mae or Freddie Mac, as I researched the US economy; one is a real surprise.

1. Freddie Mac’s official mission was to provide liquidity, stability and affordability to the housing market, as defined by a Congressional charter in 1970. In Jan., 2006, a FM news release noted the following: “[CEO Richard] Syron specifically addressed criticism that as a GSE [government sponsored enterprise], Freddie Mac poses ‘systemic risk’ to the US economy.”

2. Freddie Mac’s ‘Home Possible’ mortgage was offered either as a 100 percent loan-to-value mortgage for a single home purchase or a 97 percent LTV mortgage for one-to-four unit properties. Some of these deals required “as little as $500” in borrower cash. FM pitched the program as: “[one] expected to help thousands of families with savings issues or imperfect credit become homeowners…”

3. Sen. Barack Obama first tapped James A. Johnson, former Fannie Mae CEO and, according to the Washington Post, “[a] Washington insider since the Carter administration to lead the vetting of potential running mates for the Democratic Party’s presumptive presidential nominee.” The Post also said, "Johnson left the company before it was swept up in an accounting scandal that tarred its reputation, but even during the years of scandal, Johnson was reaping hundreds of thousands of dollars in consulting fees and other compensation, $3.3 million in all between 2001 and 2006."

4. Freddie Mac launched a multi-million dollar ‘Shop Miami’ program in 2005. Over the past five years, Freddie Mac had purchased nearly $ 12 billion worth of mortgages in the Miami-Dade County area, financing more than 100,000 homes. In May, 2006, John McCain spoke decisively about Fannie Mae and Freddie Mac in general, saying, “the GSEs need to be reformed without delay.”

5. A Freddie Mac news release touted expanding financing opportunities for Muslim Homebuyers in January, 2005. The release said the “Islamic home financing…is sharia compliant.” No explanation for other taxpayers who might not be Muslim, explaining benefits or risks, was included in the release. Here’s an excerpt from the release: “Devon Bank today announced it would begin selling its Islamic home financing products to Freddie Mac, effectively expanding opportunities for Muslims living in Illinois and nine other states to become homeowners while observing traditional Islamic restrictions on paying interest on mortgages and other types of debt."

This is a small glimpse of what I found—loans to people who might have “imperfect credit” and virtually no savings. Loans tailored to a specific religious group. A warning unheeded.

 I heard this afternoon a number of top executives bailed out of these organizations months ago so they could get their bonuses.The government should recall those bonuses immediately.  Until I started looking, I didn’t know these GSEs funded multi-family housing. I can imagine the opportunity that carrot presented to some unscrupulous developers. What’s funny is that along about the time Sen. John McCain tried to get something done (his bill failed) about Freddie Mac and Fannie Mae, no one listened. 

McCain is right about something else too. There needs to be a commission, but do it with private sector experts. We need the private experts looking over the shoulders of some of the inept individuals running our current congress.

Update on Friday, September 19, 2008 at 5:43PM by Kay B. Day, Editor

Neal Boortz offers insight on his perspective on the economic mess. Boortz makes note of those high risk loans the GSEs were offering, and how banks were essentially  blackmailed into making those high risk loans: The Rest of the Meltdown Story at Townhall. Here's an excerpt: "Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage."