Pot v. Kettle, Greenspan v. Fannie Mae

Alan Greenspan has a new book out, and he puts part of the blame for the Recent Unpleasantness on Fannie Mae. Of course, this outrages Democratic pundits like Brad DeLong.  

It's depressing that more than a half decade later, few seemed to have learned anything to help them move beyond the tired talking points. How can it not be important to develop a non-partisan, non-ideological history of the Housing Bubble and how that contributed to the great crash?

The usual liberal v. conservative categories don't work well to explain what happened. We need a new understanding that in the 21st Century, the Top Dogs, like Angelo Mozilo and Kerry Killinger of WaMu, regularly use the moral symbolism of oppressed minorities to bend traditional restraints to enrich themselves at the expense of the public.

Below is some documentation on Fannie Mae's role at the key moment in late December 2004-early January 2005 when the Bubble metastasized, to allow you to judge for yourself the culpability of the various players.

Fannie Mae was hamstrung by an accounting scandal for a few years that kept it from participating fervently in the nascent Housing Bubble of 2002-2004. But late in 2004 Daniel Mudd became interim CEO and quickly made a deal with Angelo Mozilo to buy up Countrywide's crummy mortgages. You can see a major inflection point in the Housing Bubble following this. 2004 was a bubble year, but the bubble went wild in 2005 when Fannie came back in aggressively and financed Mozilo's wildest ambitions. So Bush and Mozilo and the like launched the bubble in 2002-2004, claiming to be loosening downpayment and documentation requirements it in the name of home ownership equality for Hispanics and blacks. With regulators told to stand down, private enterprise got the party rolling. But then Fannie jumped in just when we needed some adult supervision to take away the punch bowl.

From the New York Times on October 4, 2008:

"Shortly after he became chief executive [in December 2004], Mr. Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else. 

But at that meeting, Mr. Mozilo, a butcher’s son who had almost single-handedly built Countrywide into a financial powerhouse, threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans. 

Mr. Mozilo, who did not return telephone calls seeking comment, told Mr. Mudd that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly. 

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd, according to two people with knowledge of the meeting who requested anonymity because the talks were confidential. In the previous year, Fannie had already lost 56 percent of its loan-reselling business to Wall Street and other competitors. 

“You need us more than we need you,” Mr. Mozilo said, “and if you don’t take these loans, you’ll find you can lose much more.” 

Then Mr. Mozilo offered everyone a breath mint.

Apparently, quickly after this historically catastrophic meeting between Countrywide and Fannie Mae, Mozilo issued a pledge to lend a trillion dollars to minorities and lower income borrowers:

"ORLANDO, Fla., Jan. 14 [2005] /PRNewswire/ -- Countrywide Home Loans, Inc., a national leader in expanding homeownership across America, today announced an extension of its We House America(R) initiative to fund $1 trillion in home loans to minorities and lower-income borrowers and communities through 2010. 

"The $1 Trillion We House America Challenge, expanded from $600 billion announced in 2003, embodies Countrywide's long-standing commitment to lead the mortgage industry in closing the homeownership gap for minority and lower-income families and communities," said Countrywide Financial Corporation Chairman and CEO Angelo Mozilo, who announced the initiative at the International Builders' Show in Orlando.

"For several years now, Countrywide has been a leading lender to minorities and lower-income households," Mozilo said. "I am proud of our lending record and pleased to announce the expansion of our lending commitment to $1 trillion. ... 

The company will continue to develop innovative programs emphasizing non-traditional lending criteria, thus helping to address challenges Mozilo has made to the industry, such as calling for improved underwriting systems that eliminate the over-reliance on traditional credit scores that can mask a borrower's true credit-worthiness. Countrywide is already responding to this challenge with the launch last year of its successful Optimum Loan program. That program addresses major obstacles for hard-to-qualify borrowers, such as allowing for non-occupant co-borrowers, other secondary income, and pooled funds for down payments. 

Mozilo said. "We have also called upon one of our esteemed directors, the Honorable Henry Cisneros, former Secretary of Housing and Urban Development and a former mayor of San Antonio. Henry will put to use his long and respected experience as an advocate for affordable housing who understands the benefits to communities of homeownership. He has graciously agreed to lend his support and expertise to this effort with the goal of assuring Countrywide's continued leadership in innovative, responsible and flexible mortgage products." 

Secretary Cisneros said of the initiative, "Countrywide's $1 trillion commitment is very tangible proof of this company's commitment to fair, affordable and responsible lending. This company is leading the industry in closing the homeownership gap ...