NEW YORK, Sept. 8, 2008
What Brought Down Fannie And Freddie?
CBS Evening News Investigates The Financial Downfall Of The Mortgage Giants
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Play CBS Video Video Mortgage Rates Tumble The government takeover of mortgage giants, Fannie Mae and Freddie Mac sent mortgage rates tumbling to 6.2 percent. As Anthony Mason reports, rates should continue to fall within the next few weeks.
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(AP)
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Fast Facts Fannie & Freddie A look at the government-sponsored siblings and their role in the mortgage market.
Whenever Fannie and Freddie found themselves in trouble they would invariably point the finger to a government mandate that dates back to the depression: The need to provide affordable housing to every American.
To help make that happen, the government granted them privileged status, including:
Those are powers that would only expand over the years.
"You'd have people in Congress that would make it very clear they wanted nothing to touch Fannie and Freddie," said former Rep. Jim Leach.
He said he tried to hold Fannie and Freddie's feet to the fire - with little or no success.
"At one point in time, they had more lobbyists in their employ that any other institution ever," Leach said.
In fact, CBS News has learned, Fannie and Freddie now boast nearly 150 lobbyists, spending almost $175 million combined over the past decade alone. That's more than pharmaceutical giant Pfizer and defense contractor Boeing.
The mortgage giants doled out $2 million more over the last four years through political action committees. It was money used to fend-off regulation that would have required it to maintain deeper financial reserves to act as a cushion to the kind of risky loans that led to their undoing.
"Fannie and Freddie were thuggish," said Amity Shlaes, the deputy director of the Council on Foreign Relations. "People who worked there misled other people. They used political power in an ugly way."
A few years ago, Fannie was fined nearly $400 million after an investigation revealed it overstated earnings by $10 billion to maximize executive pay. That cost former CEO Franklin Raines his job but not $65 million of the $90 million he received in bonuses.
Now the CEO's who presided over the demise of Fannie and Freddie are out the door as well, walking away with some $30 million.
While every American, it seems, is paying the price.
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- "Fannie May Approval" used to mean something. But once the qualifications and standards loosened - - - and where were the regulators? - - - the envelope of the bubble got pushed beyond the bursting point. Lower qualification standards meant that borrowers could borrow more (supply), hence increasing demand, and sending housing prices soaring. Seventy percent expense to income ratios coupled with reckless adjustable rates provided a recipe for disaster with the writing on the wall years ago. What drove it all was an addiction to profits today, and to hell with what may come tomorrow.
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