Proposed during the 109th Congress, the bill could have reigned in Fannie Mae and Freddie Mac, government sponsored lending institutions for the poor, before they had led the entire lending industry to ruin. And while Senator Barack Obama is benefiting in the polls from a public perception that Republicans are the villains, facts show the real actions that led to this debacle are almost exclusively owned by Democrats, who are now leading efforts to repair what they helped to ruin.
Fannie Mae and Freddie Mac are at the heart of this crisis. As government-sponsored lending institutions, the Clinton administration turned a Carter program in 1995 into a program to buy votes by giving homes to Americans who otherwise couldn’t afford them. With these loans pouring into the competitive private lending market, other private lenders fought to compete with the giveaways, with the more greedy and unscrupulous leaders of these lenders even eclipsing Fannie and Freddie in risky loans. And while the government used Fannie and Freddie to buy up this risky debt to keep the “vote buying” dollars flowing to more and more Americans who could never repay it, the time bomb was ticking to a lending meltdown.
In 2003, 5 years ago, Republicans took control of the Senate. On July 31, 2003, in the 108th Congress, recognizing the dangers in Fannie and Freddie, and after hearings where Fannie and Freddie were taken to the carpet for improper practices, Senators John Sununu (R-NH), Chuck Hagel (R-NE) and Elizabeth Dole (R-NC) introduced legislation to strengthen and improve the oversight of Fannie Mae and Freddie Mac. Trent Lott and John McCain were co-sponsors. This bill (S. 1508) passed the Senate Banking Committee, with Democrats opposing. With the opposition by Democrats, traditionally seen as evidence that a bill will never pass the 60-vote cloture rule for a floor vote, the bill died in the 108th Congress.
On January 26, 2005, hoping for a different result in the new congress, Sununu, Hagel, and Dole re-introduced legislation (S. 190) to improve oversight of Fannie Mae and Freddie Mac. The bill incorporated many provisions of the Sununu, Hagel, Dole legislation from the prior congress. It passed out of the Committee on another party-line vote of 11 – 9 on July 28, 2005. But again, without a single Democrat vote, the bill was doomed if brought to the floor for the critical 60-vote cloture. Only 41 Democrat votes would doom it. In a growing negative atmosphere created by the left based on the war in Iraq and Afghanistan, a fight over an unreported crisis brewing in Fannie Mae and Freddie Mac was likely considered futile. Again the bill was not scheduled to go to the floor where Democrats would certainly have defeated it by voting against cloture and prevented an up or down vote.
In May 2006, John McCain signed on as a co-sponsor of the stalled bill, in the hopes of gathering more co-sponsors and getting a vote in the 109th Congress before the bill would die. McCain would state, “I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190,to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” The bill did not obtain any of the necessary support from the Democrats, and once again, the bill died when the 109th Congress ended.
On March 14, 2006, Sununu and Hagel (R-NE) introduced an amendment to the Lobbying Reform Bill that would review the lobbying activities of GSE’s such as Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac were becoming powerful lobbyists, funneling huge amounts of campaign money to Senate leaders, including Chris Dodd, Barack Obama and Hillary Clinton. Of the top 25 recipients, 18 were Democrats with top Democrats exceeded 6-figure contributions from these federally-backed and controlled institutions. The amendment would have directed the Government Accountability Office (GAO) to study the lobbying activities of GSEs to determine whether these activities further their statutory housing mission. The amendment would also require the Secretary of Housing and Urban Affairs (HUD) to conduct annual audits of the Fannie Mae and Freddie Mac Foundations. The Amendment was defeated along party lines.
On April 12, 2007, Sununu, Hagel, Dole, and Senator Mel Martinez (R-FL) re-introduced legislation (S. 1100) to improve oversight of GSE’s. The major reforms in their bill were included in final legislation passed the Senate on July 26, 2008 and was signed into law on July 30, 2008. But it was too late, with the lending industry already beginning to fall, led by Fannie Mae and Freddie Mac.
McCain's specific comments, on May 25, 2006:
Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.
The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.
For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.
I urge my colleagues to support swift action on this GSE reform legislation.
Let's here Democrats refute the words and actions of Democrats here: