Franklin Raines

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Whether the GSEs (Government-Sponsored Enterprises) caused or greatly contributed to the 2008 financial crisis is controversial. The overwhelming consensus of those who have examined the issue find that their connection in to the crisis was minor at best. [15] The Financial Crisis Inquiry Commission (FCIC) completed its analysis [16] of the financial crisis and found that the GSE's "contributed to the crisis, but were not a primary cause". There was a strong dissent by one member of the commission. The FCIC found that the GSE's were late to the subprime lending game, entering the market in a substantial way in 2005. The GSE's followed rather than led the race to purchase subprime loan securities. The GSE's increased their involvement in the subprime securitization market because they were significantly losing market share and were feeling less relevant in the mortgage lending marketplace. In accordance with the mission of Fannie Mae to enable home ownership by a greater proportion of the population, Franklin Raines, while chairman and CEO, began a pilot program in 1999 to ease credit requirements on loans that Fannie Mae purchased from banks. Raines promoted the program saying that it would allow consumers who were "a notch below what our current underwriting has required" to get home loans. The move was intended in part to increase the number of minority and low income home owners. [17]

The Investor's Business Daily editorial staff has noted that the expansion of easy credit to home buyers with a lesser ability to pay them back was one of the major contributing factors to the subprime mortgage crisis. [18] Raines himself stated before Congress, "In 1994, we launched our trillion-dollar commitment, a pledge to provide $1 trillion in financing for 10 million underserved families before the decade was over ... In 2000 ... we launched a redoubled new pledge ... to provide $2 trillion for 18 million underserved families before this decade is over. ... we are one of the best capitalized financial institutions in the world, when compared to the risk of our business ... these assets are so riskless that their capital for holding them should be under 2 percent."

While the Fannie Mae pilot program described above sought to expand housing opportunities for under-served consumers, these loans did not result in major losses and performed significantly better than private label subprime loans. Phil Angelides, the chair of the FCIC commented that "the FCIC analyzed the performance of roughly 25 million mortgages outstanding at the end of each year from 2006 to 2009, and found that delinquency rates for the loans that Fannie Mae and Freddie Mac purchased or guaranteed were substantially lower than for mortgages securitized by other financial firms. This holds true even for loans to borrowers with similar credit scores or down payments. For example, data compiled by the FCIC for a subset of borrowers with scores below 660 shows that by the end of 2008, far fewer GSE mortgages were seriously delinquent than non-GSE securitized mortgages: 6.2 percent versus 28.3 percent." [15] Although under Raines, Fannie Mae invested in some securities backed by subprime loans, it didn't start buying subprime and Alt-A loans directly (and bundling them into securities) until 2006 after Raines had left Fannie Mae. Purchasing of subprime and alt-A mortgages expanded under the guidance of Raines's successor Daniel H. Mudd. [19] [20] (See also Subprime lending.)

On December 9, 2008, Raines testified before the United States House Committee on Oversight and Government Reform on Capitol Hill regarding Fannie Mae, Freddie Mac, and financial market instability. [21] [22] [23]

Alleged connection to Obama

On July 16, 2008 The Washington Post reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters". [24] Also, in an editorial on August 27, 2008, titled "Tough Decision Coming", The Washington Post editorial staff wrote that "Two members of Mr. Obama's political circle, James A. Johnson and Franklin D. Raines, are former chief executives of Fannie Mae." [25] On September 18, 2008, John McCain's campaign published a campaign ad that quoted The Washington Post reporting regarding Raines and Obama. The ad also notes that "Raines made millions and then left Fannie Mae while it was under investigation for accounting irregularities". [26]

Neither Raines nor the Obama campaign had disputed the Post's reporting before the ad. The text in question consisted of one sentence in each article. After McCain's ad however, both denied that Raines was or had been a provider of advice to Obama or the Obama campaign. [27] [28] [29]

In later commentary The Washington Post (the original source) described McCain's attempts to connect Obama with Raines based on their reporting as "a stretch" and said all reporting they did about the matter actually stems from a single conversation a reporter had with Raines in which she recalls Raines said he "had gotten a couple of calls from the Obama campaign". When the reporter queried Raines to the nature of the calls he said "oh, general housing, economy issues". [30]

Additionally, an email hoax falsely claimed that Raines was made "chief economic advisor" for the Obama presidential campaign. [31]

See also

References

  1. "25 People to Blame for the Financial Crisis". Time . Retrieved June 23, 2016.
  2. The First African American To Head A Fortune 500 Company, Franklin D. Raines Take Over Fannie Mae Archived February 17, 2012, at the Wayback Machine
  3. "A Homecoming At Fannie Mae; Franklin Raines Takes Charge Of a Most Political Company", The New York Times , May 17, 1998.
  4. "Senior Fannie Mae bosses resign". BBC News. December 22, 2004. Retrieved May 2, 2010.
  5. "Archived copy" (PDF). Archived from the original (PDF) on December 13, 2006. Retrieved November 28, 2006.{{cite web}}: CS1 maint: archived copy as title (link)
  6. "OFHEO to Sue Former Fannie Mae Execs". Archived from the original on January 16, 2009. Retrieved November 29, 2006.
  7. untitled Archived February 6, 2007, at the Wayback Machine
  8. Iwata, Edward (December 18, 2006). "Ex-Fannie execs face civil charges". USA Today. Retrieved May 2, 2010.
  9. Hagerty, James R. (April 19, 2008). "Fannie Mae Ex-Officials Settle". The Wall Street Journal . Retrieved September 5, 2011. Article also available (no paywall) at CorpWatch Archived March 4, 2016, at the Wayback Machine .
  10. "Too Political to Fail" (Review and outlook) (subscription required), The Wall Street Journal, updated April 21, 2008. Retrieved May 26, 2019.
  11. "Fannie Mae Liberals" (Review and outlook) (subscription required), The Wall Street Journal, updated October 14, 2004.
  12. "Top Financial News". Bloomberg.
  13. "Scandal to Cost Ex-Fannie Mae Officers Millions". The New York Times. April 19, 2008. Retrieved May 2, 2010.
  14. Countrywide Friends Got Good Loans
  15. 1 2 Angelides, Phil (August 3, 2011). "Fannie, Freddie and the Financial Crisis: Phil Angelides". Bloomberg.
  16. Get the Report : Financial Crisis Inquiry Commission
  17. Holmes, Steven A. (September 30, 1999). "Fannie Mae Eases Credit To Aid Mortgage Lending". The New York Times. Retrieved May 2, 2010.
  18. "The Real Culprits In This Meltdown" Archived September 23, 2008, at the Wayback Machine , Investor's Business Daily , September 15, 2008.
  19. "Fannie's Perilous Pursuit of Subprime Loans", The Washington Post , August 19, 2008.
  20. "Blame Fannie Mae and Congress For the Credit Mess", The Wall Street Journal, September 23, 2008.
  21. "Committee Holds Hearing on Collapse of Fannie Mae and Freddie Mac". oversight.house.gov. December 9, 2008. Archived from the original on November 26, 2008. Retrieved December 9, 2008.
  22. "Testimony of Franklin Raines (PDF)" (PDF). oversight.house.gov. Archived from the original (PDF) on December 12, 2008. Retrieved December 9, 2008.
  23. Alan Zibel (December 9, 2008). "Former Fannie, Freddie Execs to Testify". Time. Associated Press. Archived from the original on January 4, 2009. Retrieved December 9, 2008.
  24. The Washington Post, July 15, 2008
  25. The Washington Post, August 27, 2008.
  26. Campaigns target each other's advisers Archived September 21, 2008, at the Wayback Machine
  27. Politico.com
  28. Kirkpatrick, David D.; Duhigg, Charles (September 22, 2008). "Loan Titans Paid McCain Adviser Nearly $2 Million". The New York Times. Retrieved May 2, 2010.
  29. Campaigns target each other's advisers Archived September 21, 2008, at the Wayback Machine
  30. The Washington Post
  31. Snopes: Barack Obama: Advice and Descent
Frank Raines
Franklin Raines July 2002.jpg
Raines in 2002
31st Director of the Office of Management and Budget
In office
April 13, 1996 May 21, 1998
Political offices
Preceded by Director of the Office of Management and Budget
1996–1998
Succeeded by