Issue Position: Mortgage Crisis

Issue Position

All the financial bailouts came about primarily because the federal government got directly and indirectly into the mortgage business. The direct involvement was primarily through the Federal National Mortgage Company (Fannie Mae), a program started during the New Deal, but operated in a fiscally reckless way more in recent years.

The indirect involvement was by federal bank examiners putting pressure on banks, through the Community Reinvestment Act, to make loans to people who could not afford them in areas in which they really did not want to lend. There was also pressure from lawmakers. Rep. Barney Frank (D-MA) said at a hearing in 2003: "These two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies and the less we will see in terms of affordable housing."

On October 26, 2005, I voted for an amendment to allow stronger regulatory action against Fannie Mae and Freddie Mac. Unfortunately, only 73 House members voted to rein them in. James Lockhart, Director of the Federal Housing Finance Agency, said at a hearing the bailout could have been avoided if his agency had been given stronger authority over actions by Fannie and Freddie.

The House did pass a weaker version of this amendment on the same day, which I also voted for, but it was never passed by the Senate. Professor Charles Calomiris of Columbia, and Peter Wallison, former General Counsel of the Treasury Department, wrote in the Wall Street Journal: "If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime…portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk-taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it."

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