Late in the Clinton administration, however, then-Sen. Chris Dodd, D-Conn., and then-Rep. Barney Frank, D-Mass., fronted a conspiracy by Fannie Mae, Freddie Mac, the Department of Housing and Urban Development and the Office of Management and Budget to exploit Jimmy Carter’s Community Development Act. Under the threat of civil litigation and criminal charges, lenders were forced to meet mortgage quotas, the untenable risks they were taking be damned.
By 2004, the U.S. ownership rate soared to 69 percent because lenders, spurred by political corruption on Capitol Hill and backed by the full faith and credit of the federal government via Fannie and Freddie, had become very creative in mortgage writing. By then, the markets were awash with subprime, liar, no-income, no-assets, interest-only and negative-amortization loans, bundled as mortgage-backed securities and sold primarily to Fannie and Freddie. By keeping interest rates low, the Federal Reserve helped keep the so-called housing bubble inflated into 2007. Meanwhile, Sen. Dodd and Rep. Frank thwarted Bush administration efforts to reform Fannie and Freddie in a belated effort to deflate the bubble slowly.
Once the economy began to tank, however, delinquency and foreclosure rates skyrocketed, peaking in 2010 at 11 percent and 4 percent, respectively. At 7.4 percent and 3.6 percent, the rates remain well above their historic ranges. In the last six years, millions of Americans have lost their homes to foreclosure, and tens of millions now owe more on their mortgages than their homes are worth.
After the financial crisis, Congress assigned then-Sen. Dodd and Rep. Frank, as heads of the Senate and House banking committees, to write sweeping banking-system reforms. Among other things, the Dodd-Frank bill created the Consumer Financial Protection Bureau, which spent the last 18 months ostensibly overhauling the lending industry. Announced last week and scheduled to go into effect Jan. 1, 2014, the bureau’s new rules mirror those that lenders adopted in the aftermath of the mortgage meltdown. With some exceptions, the rules are in line with those that were in effect before Dodd, Frank and other government officials tried in vain to override basic economic laws through market manipulation and political corruption.
They could have saved Americans a lot of grief and debt if they'd left well enough alone.