Although the mechanics of this down hill slide for Freddie Mac and Fanny Mae probably started as far back as the Carter administration, it really got a huge head of steam during the Clinton era.

We will focus on what happened while Clinton was in office.

The CRA’s rules were completely re-written by Clinton..The rules re-write were not enough for Clinton so he got Department Of Housing and Urban Development to double team the issue. This move had disaster written all over it. One of things that the then HUD Secretary Cuomo did was to allow Freddie and Fanny to get into the subprime loan markets. (Major Mistake). Freddie and Fannie were also allowed to only have 2.5% of there capital to back there investments. Banks on the other hand were required to have 10%.

So with all of the incentives in place billions in loans were put into place in poor communities. A lot of these loans required “no doc” and “no income” and required no money down and no proof of income. As of last year Fannie and Freddie guaranteed around 6 Trillion of the mortgage market. (About half of the total). This turned out to be a huge liability.

Moving right along. And here comes the cronyism. Both Fannie and Freddie became the residence of out of work politicians! That fact alone in our opinion spelled diaster. Campaign contributions from Fannie and Freddie flowed like water between ‘89 and ‘08 to some 384 politicians and some 200 million was spent on lobbying. Yikes!! 200 mil to the crooks on K Street!

Now with a ton of these loans going down the pooper, minority homeownership is shrinking fast.

This brings to mind the thoughts, “why would anyone in there right mind give huge loans to anyone with no credit or bad credit and no or very little income?” Answer: The inept corrupt crooks in Washington.

The mess afore mentioned in our opinion is definitely part of the Clinton legacy.

CRA = Community Reinvestment Act

Sources: Albuquerque Journal and Investors Business Daily

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