They say the definition of insanity is doing the same thing over and over again while expecting different results. If that is the case, then the housing reforms reportedly under consideration by President Obama are downright crazy. At last week’s Twitter town hall, William Smith asked Obama, “What mistakes have you made in handling this recession and what would you do differently?” The only policy area Obama would admit fault was in housing: “I think that the continuing decline in the housing market is something that hasn’t bottomed out as quickly as we expected. … We’ve had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up.” So what are Obama’s latest ideas for fixing the housing crisis? The Wall Street Journal reported on a slew of them Monday, including “having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors.” Has Obama learned nothing from the 2008 financial crisis? Relaxed lending standards at Fannie and Freddie, aided and abetted at every point by Republicans and Democrats in the White House and Congress, caused the nation’s housing meltdown in the first place.
Shortly after James Johnson, Walter Mondale’s 1984 campaign manager, became chairman of Fannie Mae, Fannie began buying subprime mortgage-backed securities in order to boost low-income homeownership. By 2000, Fannie had purchased $18.6 billion of these subprime securities. By 2004, Fannie and Freddie were buying up 44 percent of the entire market for subprime securities. Paralleling these developments, the U.S. Department of Housing and Urban Development applied unremitting pressure on lenders to loosen their loan standards, with the result that millions of buyers who were poor risks got mortgages that would ultimately become foreclosures.
