Barney Frank Calling on Freddie & Fannie to Relax Lending Standards

Massachusetts Congressman and the current chairman of the House Financial Services Committee, Barney Frank, has asked Fannie Mae (FNM) and Freddie Mac (FRE) to take more credit risk and re-roll the dice in the name of affordable housing. In a letter  sent to the two government sponsored enterprises (GSEs),  Mr. Frank and New York Rep. Anthony Weiner encourage both GSE’s to lower mortgage underwriting standards for condominium buyers. What?!

From the WSJ: 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 [Congressman Anthony] 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 billions of dollars betting on the mortgage market — with that bill being handed to taxpayers.

Isn’t the definition of insanity doing the same thing repetitively yet get different results?…This is beyond comprehension really.

emphasis added

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