And the insanity continues...

WSJ Opinion piece "Barney the Underwriter" on 6/24/09.

Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to "roll the dice" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity -- with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.

You read that right. After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development. 

Fannie and Freddie have restricted loans to condo buyers in these situations because they represent a red flag that the developments -- many of which were planned and built at the height of the housing bubble -- may face financial trouble down the road. But never mind all that. Messrs. Frank and Weiner think, in all their wisdom and years of experience underwriting mortgages, that the new rules "may be too onerous."

And in a display of the wit for which Mr. Frank is famous, the letter writers slyly point out that higher lending standards won't reduce taxpayer exposure to bad loans because the Federal Housing Administration has even lower standards for condos. "While the underlying goal may be to reduce taxpayer exposure relating to the current conservatorship of the GSEs [government sponsored entities], such a goal would not have such an effect if it merely results in a shifting of loans from the GSEs to the FHA." Tougher lending standards will merely shift market share from one government program to another, so what's the point in being cautious?

Fannie and Freddie have already lost tens of billions of dollars betting on the mortgage market -- with that bill being handed to taxpayers. They face still more losses going forward, because in the wake of their nationalization last year their new "mission" has become to do whatever it takes to prop up the housing market. The last thing they need is lawmakers like Mr. Frank, who did so much to lay the groundwork for their collapse, telling them to play faster and looser with their lending standards.

Fannie and Freddie have always been political creatures under the best circumstances. But we don't remember anyone electing Mr. Frank underwriter-in-chief of the United States.


AMD.com Commentary

The insight provided by this letter into Barney Frank's psychology is profound. 

Mr. Frank has correctly identified The Coming Federal Housing Administration (FHA) Disaster detailed here on 4/3/09.  Instead of being outraged by an inevitable financial collapse, acting in the best interest of taxpayers, and working to curb the FHA's irresponsible risk, Barney has instead decided to use the FHA's lax standards as justification for spreading reckless behavior to Fannie Mae and Freddie Mac.

It was exactly, precisely this sort of irresponsible Government manipulation which created both the Housing Bubble and The Affordable Mortgage Depression.

Mr. Frank and his homeownership-activist cohorts are guilty of causing more economic damage than Bernie Madoff, Dick Fuld, Angelo Mozilo and all the other now demonized faces-of-abuse combined.  The only difference is that Mr. Frank is allowed to continue his assault on the U.S. economy while avoiding the public condemnation and ridicule that he so richly deserves.