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As Chairman of the House Financial Services Committee, Barney Frank is one of the few people who actually had an opportunity to do something about the mortgage meltdown before it happened. He failed. In fact, when President Bush called for more regulation of Fannie Mae and Freddie Mac, Frank openly opposed him. As it turns out, he was involved with a sexual liaison with a Fannie Mae executive. Then, when the housing market collapsed, Frank had the audacity to blame President Bush and every other regulatory agency; taking none of the blame himself. Now, even after it has become glaringly apparent that one of the primary reasons for the current economic crisis was relaxed lending standards, Frank is openly criticizing Fannie Mae and Freddie Mac for having lending standards that are too strict. So much for learning from experience.
Fannie Mae and Freddie Mac are quasi-government corporations. They guarantee millions of home loans. Until recently, their lending standards had been quite relaxed. In fact one could make the argument that Fannie and Freddie actually helped to accelerate the collapse of real estate markets by guaranteeing many loans for borrowers that had no reasonable means to repay them. In the end, Fannie and Freddie became the first two organizations requiring a federal bailout. There were certainly not the last.
When the government essentially took over Fannie and Freddie, tax payers became responsible for the roughly $5 Trillion in loans that the organizations guarantee. Due to the way that they were taken over though, that $5 Trillion has not been added to the official national debt. And to be sure, a majority of that money will actually be repaid by borrowers. Still, taxpayers are responsible for loans that go into default; a number which continues to rise.
Given this experience, most reasonable people would be happy to learn that Fannie and Freddie have increased their lending standards. After all, it serves nobody’s interest if either of these organizations makes bad loans that taxpayers will then have to cover.
One of the standards that Fannie and Freddie have made more difficult is the set of conditions for which they will guarantee loans for condominiums. It used to be that both organizations would guarantee loans as long as the condo was located in a building where at least 51% of the units had been sold. That number has now been increased to 71%.
You may think that this is a relatively minor change. But for condo builders and owners alike, it is having a real impact. That’s because toward the end of the housing boom, high-rise condos were popping up all over the place. Las Vegas. South Florida. A lot of areas have a glut of vacant condos for sale. The change to lending standards makes it a lot more difficult for people to buy and sell them.
What has to be remembered here is that a good number of condo developments probably never should have been built. These developments often targeted buyers who never could have afforded to purchase a home or condo without ridiculously low lending standards. Now, the people who built these developments, and some who bought into them, can’t sell. They gambled and lost, and they don’t like it. So Barney Frank is now trying to ride in on a white horse – that’s quite an image isn’t it – and save the day. But for whom.
If Frank gets his way, taxpayers will be the losers. He’s essentially telling Fannie and Freddie to make bad loans. Loans to people buying into buildings which will take years to sell out and which may become dilapidated as a result. If that happens, those buyers may never be able to sell; leaving taxpayers holding the bag when they eventually walk away from their loans.
Relaxed lending standards are one of the primary reasons that we had a housing bubble in the first place. And Barney Frank – someone who has oversight authority but who failed at every turn to use it – is one of the primary reasons that lending standards remained lacking for as long as they did. Given this history, the best thing that anyone can hope for is that everyone else will simply ignore Frank. We don’t need to go back to the bad old days when anyone who breathed could get a mortgage.
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Credit Issues 
