A response to Ask President Obama Your Questions About Housing | The White House: http://wh.gov/lrfvc @whitehouse
Mr. President, I am the son of a retired Chrysler employee. My dad had been employed at Chrysler for 25 years before it entered bankruptcy. He lost his job and pension. At the age of 65, he now cuts and sells firewood to make it through the winters in Detroit. At the time, I was a homeowner in San Francisco, and my family suffered a substantial loss in our home value. Fortunately, we minimized our risk by saving money and using it to pay down the loan until we were able to refinance. However, others in our neighborhood were not as fortunate. The circumstances that led to their foreclosures were troubling. These events forced me to study the root causes that led to my dad's tragedy, and the subprime crisis, which then motivated me to study the problems associated with the conservatorship of Fannie Mae and Freddie Mac.
As the subprime crisis was evolving, banks were lending to people in our neighborhood with no credit. For instance, one buyer near us was foreclosed on within a month of his closing! This made it clear to me that the type of lending involved was fraudulent. Banks were originating mortgages and quickly selling them to companies like Countrywide, which is now owned by Bank of America. The new owners then bundled the mortgages into investment packages, illegally rated the mortgages triple-A and then sold them to investors. Like any product in the market, sellers are responsible for setting the expectation about the quality of their products, and must accept a return if the product does not, in fact, meet their label. I only later came to discover that these mortgages were packaged by some banks such as Bank of America, who has been at the mercy of your bailouts, and then rated these mortgages as triple-A. As you are aware, Fannie and Freddie have been in litigation against such banks for fraud, and to date, sued for hundreds of billions of dollars, and counting.
Mr. President, are you aware that Fannie and Freddie were the subjects of abusive behavior by loan originators, corrupt government officials, and Wall Street banks, which produced the personnel and circumstances that allowed the massive acquisition of low grade, privately labeled, subprime securities?
What exactly about Fannie and Freddie needs reforming, since their mortgages performed better than the rest of the market, and they helped stabilize the housing market since 2008?
What role did the FDIC play in preventing taxpayers from first loss, when the banks and insurance companies required billions more than Fannie and Freddie received in bailouts?
Wouldn't you agree that the same banks that were bailed out, have since been convicted of fraud, perpetrated against Fannie and Freddie? So, doesn't it make sense to focus our efforts on preventing fraud rather than winding down the GSEs?