Charlotte Observer Logo

What led to latest mortgage crisis? | Charlotte Observer

×
  • E-edition
  • Customer Service
  • Advertise
  • Newsletters

    • News
    • Local
    • Crime
    • Databases
    • Education
    • Election
    • Politics
    • Nation/World
    • Special Reports
    • North Carolina
    • South Carolina
    • Corrections
    • Columnists
    • Retro Charlotte
    • Your Schools
    • All Blogs & Columns
    • Sports
    • Carolina Panthers
    • Charlotte Hornets
    • That's Racin'
    • High Schools
    • College Sports
    • Charlotte Knights/MLB
    • Other Sports
    • Blogs & Columnists
    • Inside the Panthers
    • Inside the NBA
    • Prep Insiders
    • Scott Fowler
    • Tom Sorensen
    • All Blogs & Columns
    • Politics
    • Elections
    • The North Carolina Influencer Series
    • RNC 2020
    • Business
    • Banking
    • Stocks Center
    • Top Workplaces
    • National Business
    • What's in Store
    • Development
    • All Blogs & Columns
    • Living
    • Religion
    • Food & Drink
    • Health & Family
    • Home & Garden
    • CLT Style
    • Travel
    • Living Here Guide
    • Blogs & Columnists
    • I'll Bite
    • Kathleen Purvis
    • All Blogs & Columns
    • Arts/Culture
    • Events
    • Movie News & Reviews
    • Restaurants
    • Music/Nightlife
    • Television
    • Books
    • Comics
    • Puzzles & Games
    • Rewards
    • Blogs & Columnists
    • All Blogs & Columns
    • Opinion
    • Editorials
    • Influencers Opinion
    • Kevin Siers
    • Letters
    • Submit an Op-ed
    • Submit a Letter
    • Viewpoint
    • All Blogs & Columns
    • Blogs & Columnists
    • O-Pinion
    • You Write The Caption
    • Taylor Batten
    • Peter St. Onge
  • Celebrations
  • Obituaries
  • TV Listings

  • Public Notices
  • Cars
  • Jobs
  • Moonlighting
  • Virtual Career Fair
  • Homes
  • Classifieds
  • Place an ad
  • Mobile & Apps

  • MomsCharlotte
  • Carolina Bride Magazine
  • South Park Magazine

News

What led to latest mortgage crisis?

By Julie Creswell - New York Times

    ORDER REPRINT →

July 13, 2008 12:00 AM

As the Bush administration scrambles to address the sudden decline of the country's two largest mortgage finance companies, some of their longtime critics say the crisis has been building for years.

Among them is Jim Leach, a Republican former representative from Iowa, who argued in Congress that the government-chartered mortgage companies, Fannie Mae and Freddie Mac, were unfairly insulated from the real world.

Lots of perks came with Fannie and Freddie's charters and government backing: exemptions from state and federal taxes, relatively meager capital reserve requirements, and an ability to borrow money at rock-bottom rates.

Today they own or guarantee about half of the country's $12 trillion in mortgage debt, so the free fall of their share prices last week amid concerns that they were undercapitalized has sent Wall Street and Washington into a tizzy.

Sign Up and Save

Get six months of free digital access to The Charlotte Observer

SUBSCRIBE WITH GOOGLE

#ReadLocal

The dominant role Fannie Mae and Freddie Mac play today is no accident. The companies, Wall Street, mortgage bankers, real estate agents and Washington lawmakers have built up an unusual and mutually beneficial co-dependency, helped along by extensive lobbying efforts and campaign contributions.

In Washington, Fannie Mae's and Freddie Mac's sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.

From 1990 to 2000, each company's stock grew more than 500 percent and top executives earned tens of millions of dollars. Even after accounting scandals arose at the two companies a few years ago, attempts to push through stronger oversight were stymied because few politicians, particularly Democrats, wanted to be perceived as hindering the American dream of homeownership for the masses.

Of course, foes of Fannie Mae and Freddie Mac began their own lobbying efforts, the most muscular of which had the backing of banks eager to get their own piece of the companies' lucrative mortgage business.

Supporters of Fannie Mae and Freddie Mac say much of the companies' lobbying machines have been taken apart in the wake of the accounting scandals, which resulted in billions of dollars of financial restatements and the ouster of major executives.

Critics say that current legislation before Congress could, if passed, give even more power to Fannie Mae and Freddie Mac by allowing them to venture into new mortgage-related businesses. That, they say, is evidence enough that the companies have not been fully defanged.

“For sure, the political machine has not been dismantled,” said Thomas Stanton, a finance professor at Johns Hopkins University. “For every interest that might lose if Fannie and Freddie expands into what it does, you have someone else who wants to do business with them.”

  Comments  

Videos

Take a walk around the security perimeter of the Spectrum Center for the All-Star game

A traditional Native American flute performance.

View More Video

Trending Stories

DNA testing needed to identify mystery animal that attacked and killed NC teacher

February 18, 2019 07:37 AM

A 6th grader asked a billionaire for tickets to the All-Star Game. His school got 30.

February 17, 2019 01:44 PM

How 5Church came to host Lebron James & Co. at All-Star Weekend’s most-buzzworthy bash

February 17, 2019 09:44 PM

Who won the NBA All-Star Game? The city of Charlotte, which did itself proud.

February 17, 2019 11:18 PM

Bladen County operative ‘told us what we were to say’ at hearing, worker testifies

February 18, 2019 06:00 AM

things to do

Read Next

National

AP News in Brief at 12:04 a.m. EST

The Associated Press

    ORDER REPRINT →

February 19, 2019 12:04 AM

AP News in Brief at 12:04 a.m. EST.

KEEP READING

Sign Up and Save

#ReadLocal

Get six months of free digital access to The Charlotte Observer

SUBSCRIBE WITH GOOGLE

MORE NEWS

Jailed Citgo executives in limbo amid Venezuela turmoil

National Business

Jailed Citgo executives in limbo amid Venezuela turmoil

February 19, 2019 12:02 AM
‘Knights of the Round Table’ gather each morning in Dallas

North Carolina

‘Knights of the Round Table’ gather each morning in Dallas

February 19, 2019 12:01 AM

National Business

Son sheds anger after mom’s murder in attack at Emanuel AMC

February 19, 2019 12:01 AM

National

Today in History

February 19, 2019 12:00 AM
A ban on bans: Are SC legislators killing local control as favor for Big Business?

South Carolina

A ban on bans: Are SC legislators killing local control as favor for Big Business?

February 18, 2019 05:00 AM
He’s known for secession bill and attacking Obama as ‘Islamic.’ He wants a seat in Congress.

Politics & Government

He’s known for secession bill and attacking Obama as ‘Islamic.’ He wants a seat in Congress.

February 18, 2019 07:04 PM
Take Us With You

Real-time updates and all local stories you want right in the palm of your hand.

Icon for mobile apps

Charlotte Observer App

View Newsletters

Subscriptions
  • Start a Subscription
  • Customer Service
  • eEdition
  • Vacation Hold
  • Pay Your Bill
  • Rewards
Learn More
  • About Us
  • Contact Us
  • Newsletters
  • News in Education
  • Photo Store
Advertising
  • Information
  • Place a Classified
Copyright
Privacy Policy
Terms of Service


Back to Story