Just Some Questions

Below are questions I have asked myself throughout the past week. Instead of writing what my answers to them would be I am interested in any answers you may have, or additional questions you have asked yourself.

For the week starting Monday July 20, 2009:

Why is the Obama Administration not releasing June financials?

It couldn’t be they are waiting until after Congress goes on recess to release figures that show the budget and operations aren’t doing so great, could it?

Have you Binged? (that is Bing –ed note binge- ed! As in Microsoft Bing search platform)

What percentage of health care costs are do to litigation or defensive procedures done in fear of litigation?

Are you acting stupidly if you state someone else acted stupidly without knowing the facts surrounding the actions?

How much is spell check, texting and Tweeting with the character limitations of Twitter hurting the language skills of our younger generations?

Fair food: corn dog or turkey leg?

In his press conference President Obama said doctors make medical decisions based on fee schedules, would pull out tonsils for a sore throat because it pays more, does your doctor make decisions about your health depending on how much s/he will get paid?

Are you in favor of a part-time legislature in California?

Have you watched gas prices as closely this summer as last?

What percentage of healthcare costs are because of procedures done defensively to avoid possible malpractice suits?

What is the worst movie you have seen, in the theater, in 2009?

So the California Democrats would rather cut education spending than drill off the shore of California and bring in $100 million plus?

Can you name the time and place of the last negative event from off shore oil production in California? Let’s make that the last five so we don’t have a one-time apparition, shall we?

Doesn't it make sense to clean up the waste and fraud in our existing Federal healthcare programs, i.e. Medicare and Medicaid, and solve inefficiencies there before increasing spending more than 15 times for similar programs?

Why is the United States building two nuclear power plants in India but not in the United States? Are we too good for nuclear power or is it too good for us?

What is your favorite Disney movie?

Is the happiest group in America right now Obama’s classmates at Harvard Law who will make fortunes guiding clients through loopholes and finding shelters to avoid the taxes Obama wants to impose on them?

Have you ever not shaken someone’s hand when offered theirs?

What is your favorite summer memory from when you were in elementary school? Junior High? High School?

Does your family have a summer vacation tradition?

Can you name a better sound than two young siblings playing by themselves and giggling uproariously?

Have you seen our $18 million dollars?

Cookies or Pie?

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"Above All, Do No Harm"

Most Americans are familiar with the concept of the Hippocratic Oath, the Oath which our doctors take to commit themselves to the well being and health of those they treat, "Above all, do no harm." This is not the oath taken by members of the United States Congress nor the President of the United States. Their oaths are to preserve, protect and defend the Constitution of the United States. To preserve, protect and defend the Constitution, sometimes you must do harm. This must be the guiding force for President Obama and some Democrats in Congress as they are pushing for passage of a Health Care Bill that will dramatically alter the United States health care systems, economy and culture. And it must be done by August because members of Congress go on vacation for the month.

So far the 111th Congress has passed, and President Obama has signed, some pretty significant legislation that was bulky, expensive beyond historical proportions, and unread. As we saw with the "Stimulus" bill passed early in this session of Congress, billions of dollars were spent on projects that almost no members of Congress knew about--except those shoving in their pet projects. The resulting bill did not resemble in spirit or in actuality the intentions given to the American people: to provide Federal funding for infrastructure projects that are "shovel ready" that will provide jobs for Americans. Since passed little of the money has been spent, projects across the country that were "shovel ready" are now on holding pending several additional layers of red-tape, and unemployment is approaching 10%. Last month the House passed the Cap and Trade Bill which is very harmful to American businesses and is very expensive, and went unread by almost every member of the House before they pushed it through with a bare majority vote--needing eight Republicans to cross the aisle for passage.

In 1993 then First Lady Hillary Clinton presented a health care reform package to Congress that was over 1000 pages and very complicated. Members of Congress read the bill, found many flaws and eventually decided it was not something their constituents wanted. In 2009 Democrats presented a health care reform package to Congress that is over 1000 pages and very complicated. Members of Congress are barely reading the bill and are expected by Congressional leadership and the President to pass it in the next week. One can hope that the 111th Congress will follow the lead of the 103rd Congress and actually read and deliberate the bill before them. Given the rushing to vote on major bills thus far my hope is scant.

Health care in America is very complicated with many layers, there is private insurance, Medicare, Medicaid, Medical, COBRA, medical groups, HMOs, PPOs, and all you want is to have your child vaccinated or treated for bronchitis. Most Americans are in good health, have minimal interaction with the medical profession, have good insurance obtained through their place of employment and seeing rising premiums despite their good health because of government regulations that say premiums cannot be higher for one employee than another. So at work you pay higher premiums for the poor health choices of co-workers who may have issues due to their over-eating, smoking, drinking, etc. As well you pay additional taxes to pay into Medicare and Medicaid/Cal to pay for the health care of those who do not have insurance, they are covered at very little or no cost whenever they visit the doctor or a hospital. Most Americans are not thrilled by their higher taxes and premiums due to the poor decisions of their co-workers and the uninsured they are covering, but they pay and move on.

From an employer standpoint health care is very complicated as well. Regulations state that how one is covered all are covered. Many companies have one or more people dedicated just to managing the health insurance and other benefits provided to their employees. In America if you own a company you are also responsible for your employees health care, why is another topic, but personal responsibility for one's health care has been taken from you the individual and given to your employer. Thus your employer selects which insurance company will provide your insurance and which plans will be available to you. As mentioned because it is a group plan your premiums are predicated on the overall health of the group, lowest common denominator dictating premiums for the most healthy. The employer must keep track of the premiums, ensure the insurance company is helping employees, keep track of when new employees are eligible and keep track of the COBRA rules for employees whose employment is terminated either voluntarily or involuntarily. Most employers take on this burden as a cost of doing business and understand to be competitive in the marketplace for quality employees must have a good insurance plan. Some employers pay all the premium for a worker and his/her family, others cover just the employee's portion, but whatever is covered for one must be covered for all.

Under the bill currently being rushed to vote in Congress for health care reform are provisions that many employers will welcome from a profit standpoint, while probably dislike from a personal standpoint. In the bill companies will be able to drop their company insurance plans and save money on their health care costs. Depending on the total payroll of the company, any company not providing insurance for their employees will have to pay from two to eight percent of the payroll to the government who will provide their insurance. So no more COBRA, no more keeping track of premiums, no more having personnel specifically on the payroll just to deal with insurance. Further for many companies paying even an 8% additional payroll tax is cheaper than the premiums they are paying now for their employees. Further, in the plan is a provision to tax the health care premiums that are paid by the employer and the employee--no more pre-tax benefit for health insurance. By getting rid of the insurance plan the employer saves money in premiums, labor resources and costs to track insurance and payroll taxes. Simple math and a look at the bottom line dictates getting rid of the company plan. Suddenly you are federally insured and subject to the guidelines, policies and procedures for your healthcare as dictated by the federal government.

President Obama has said that if you are in a private insurance plan and have a family doctor you will not see any changes or additional cost because of the bill in Congress. This is simply not true. There is no way this plan with costs in the trillions, which will alter the relationships, compensations, premiums and requirements for employers, doctors, hospitals, pharmacies, drug companies and patients will not impact the status quo. Further at a cost of several trillion dollars who is going to pay for this? The "rich"? Guess who becomes "rich" once the government needs to pay a bill that has now grown to over $12 trillion before this health care bill?

If you own a company you must contact your Congressional representatives and tell him/her you will support their re-election if they rush to vote on this bill before it can be dissected and debated. If you are insured by your company you must contract your Congressional representatives and tell him/her you will not support their re-election if they rush to vote on this bill. No one wins by Congress taking the most complicated issue before our country, its health and health care delivery, and "solves" the issue in less than two or three weeks.

Obama repeatedly said on the campaign trail that he wanted bi-partisan support for major issues, that he would change politics in Washington and reach across the aisle for input and ideas in crafting solutions to such major issues as health care. Well we have seen that for him bi-partisanship is Republicans agreeing with him, bi-partisanship is presenting one solution across the aisle and criticizing and debate, bi-partisanship is shutting the opposition out of meetings where legislation is being crafted. This issue is too big to shove through Congress. It impacts every single American, except those in Congress with their own health care system. It impacts every person reading this post. Contact your Congressional representatives and tell them to slow down. Read the provisions, speak to your constituents and do what they want.

When dealing with health care one should remember, "Above all, do no harm."


UPDATE 7-22-09 1:00 pm: Thanks to sister Sharon for providing this link which contains a list of "tweets" from blogger at Economic Policy Journal who has read the 1000 page bill and posts his findings. A sample: "PG 203 Line 14-15 HC - "The tax imposed under this section shall not be treated as tax"" and "PG 50 Section 152 in HC bill - HC will be provided 2 ALL non US citizens, illegal or otherwise" and "Pg 425 Lines 17-19 Govt will instruct & consult regarding living wills, durable powers of atty. Mandatory!" Read the entire list put together so far at EconomicPolicyJournal, real policy lifted right out of the bill Obama is pushing to have passed by August 1st.

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Take These Jobs And....

We all remember the popular lyric from the appropriately named Johnny Paycheck, "take this job and shove it, I ain't working here no more." A similar refrain has been heard throughout the Golden State for the past decade or more as companies and corporations have opted to open new businesses in Arizona, Oregon, Nevada, Texas, and many other states rather than do so in California. While many in Sacramento point to statistics that they say show no jobs were lost by companies leaving California for the past decade, what they cannot show is that during a period from 2002 through most of 2007 when our national economy grew every single quarter--that is twenty straight quarters of economic growth--California did not gain new jobs. Following the state on this path is the City of Long Beach. During a period of historic economic growth Long Beach lagged behind cities in neighboring states in adding new companies and corporations to employ its residents. Throughout the city and state there has been a loss of manufacturing jobs, assembly jobs, production jobs, and a small increase in service industry jobs. In the past decade California has lost in the neighborhood of half a million manufacturing jobs, in the same time frame however the number of government employees has increased by over 125,000.

Not ones to learn about economics or cause and effect while in office, the Long Beach City Council on July 14th continued on the path of hostility to business and job creation in the city with a vote to postpone approving an ordinance to allow more jobs. While all the attention at the Council was on the proposed Equal Benefits Ordinance that would require contractors doing business with the city to offer equal benefits to registered domestic partners as it does to married couples, by a vote of 7-1 the council was able to postpone the development of a new hotel for at least one more week. With the vote the council once again took out a full page ad in the "Don't Bring Jobs Here" journal that is widely read by executives and CEOs looking to grow their companies.

Several years ago the downtown area of Long Beach changed with the development of The Pike. The new development, designed as an outdoor mall, was to have shops and restaurants and encourage visitors and residents to stroll and shop and dine. About the only strolling however is from the parking garage to California Pizza Kitchen or Islands and most of the shops in between have turned over or are vacant. The development has been a disappointment despite a full convention center across the street, thousands of new residential units that are now occupied within walking distance and restaurants north and south that have thrived since the development of The Pike.

When a national upscale hotelier came to the city and indicated a willingness to build a 125 room hotel on the edge of The Pike it seemed like a great idea. Close to the convention center, downtown offices and the vacant store fronts at The Pike, visitors to the hotel could easily walk and shop and dine--surely such a hotel in this location would help revitalize the site.

Not so fast says seven members of the Long Beach City Council. Anyone who is semi-conscious knows that financing for anything is difficult to obtain in the current economy, but the City Council of Long Beach wants the developer of the hotel to wait a bit longer before securing final financing of the project--a potential deal killer. The hotel will generate much needed revenue for the city directly from bed taxes and secondarily from sales tax revenue of visitors shopping and dining in the city--but those revenues can wait. The construction and furnishing of the development will bring jobs to the city and region, but those jobs can wait. All the positive aspects of this project are on hold. Why?

The Long Beach Coalition for Good Jobs & A Healthy Community (site here) is a front group of organized labor groups that have been pressuring Long Beach hotels to unionize their workers for some time. The group consists mainly of union representatives and representatives of non-profit groups in the community that support immigrant laborers. Their purpose is to get the hotel industry to "invest in its workforce" because it feels uneducated workers with limited to no language skills, English language skills, should be paid on equal terms to educated workers with skills to communicate and use things like computers. Their only purpose of course is to unionize the workers, which will generate more dues for the unions and of course more political contributions for political campaigns. If this group really cared about the workers they would be using their funds to educate them to get high school diplomas, learn to speak and read English fluently and greatly increase chances for above minimum wage employment. Instead the group trots out "representative" workers to say how bad their plight is because they have jobs in a city with an unemployment rate of 12%.

Of the seven council members who voted for the postponement in completing the Hotel Sierra we have the following: 1st District Robert Garcia who is facing re-election in 2010, received backing from public employee unions for his recent election and will need labor support to get any Democratic Party primary funding for his future, 2nd District Suja Lowenthal (whose district includes the hotel) recipient of public employee endorsements and funds, 5th District Gerrie Schipske, former attorney for the teacher's union, 7th District Tonya Uranga who has a staff member on the board for the Long Beach Coalition and whose husband is running for her seat, 8th District Rae Gabelich who received backing and funding from public employee unions, 9th District Val Lerch who received backing and funding from public employee unions and who is running a write-in campaign for re-election. Six of the seven members who voted to delay the construction of the hotel have union support to get into office.

Our City Council is becoming increasingly comfortable in meddling in how businesses operate. No longer is their purpose to provide for the safety of residents and businesses, maintain infrastructure, and encourage a healthy business environment that encourages employers to bring jobs and raise the quality of life in our city. Instead the council and city have veered sharply towards the anti-business crowd, vocal on websites across the city and country that decry anyone who shows a profit, who pays minimum wage, who dare to provide jobs, services and goods to local communities. Why is Long Beach facing unemployment higher than the state of California? Why is California facing unemployment higher than the national average? Why are states like Texas still attracting employers and jobs, companies expanding and growing even in our current environment?

As always with politics follow the money. In Long Beach the only money that matters is money that has been taken from workers through dues paid to organized labor and taken from their paychecks as political donations. Every state district in Long Beach, and with the exception of the Shore every federal district, is overwhelming Democrat in registration. To win an election an individual needs to be a registered Democrat an win the Democratic Primary for that seat. To win the primary they must, absolutely must, have the considerable financial support of the public employee and private industry unions. Ask Laura Richardson. Ask Alan Lowenthal. Ask Bonnie Lowenthal. Ask Wayne Furutani. Despite the role of organized labor in our state and city financial messes with salaries and benefits that have rocketed, they continue to control our elections and officials. Despite the record showing the long term impact of such influence on the auto industry, the airline industry and public budgets across the nation, our officials still chase those funds for their next election.

As long as Long Beach voters keep electing the same people to the same offices being supported by the same funds from the same organized labor groups our elected city officials will continue to behave as they did last Tuesday. Voting to delay or kill projects and developments that would bring jobs and revenue to our city. And the more they follow this path the higher our unemployment numbers climb, in the city and in the state.

UPDATE: Councilman Val Lerch sent me this email this morning after reading this post:

Dennis, a correction to the Sierra Hotel story. I am not in support of any type of forced labor deals. I do not support living wages, (they just become the new minimum wage and drive up costs). I supported a one week delay as a courtesy to my colleague.

Do I need to remind you that I was and still am an opponent to PLAs and the ban on K-Mart. I had hundreds of HERE and LA Feds come after me in the last election and will this election. They put hundreds of their members on the streets in NLB to get me out of office. They backed my opponent spending over 100k against me and denoted 50k more.

Thank you for listening.

Val Lerch
Write-in Val Lerch for City Council 2010
Committee ID #1319487
562-884-2759

Thank you Val for the information, and also your positions on these issues.

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Just Some Questions

Below are questions I have asked myself throughout the past week. Instead of writing what my answers to them would be I am interested in any answers you may have, or additional questions you have asked yourself.

For the week starting Monday July 13, 2009:

For those who take an early morning walk, have you noticed a big spike in spider webs this past week?

Are the governments of San Francisco, Los Angeles, Berkeley, Oakland, Seattle, Portland and Minneapolis role models you wish your city government emulates?

Is there a better smell than a fresh pie baking in your oven?

Which advertisement on the television are you most tired of? On radio?

Why do we sometimes feel guilt when we do the right thing?

Have you watched any of the Sotomayor hearings?

What would you have to hear to change your mind about a nominee to a Federal judgeship?

Do you feel the confirmation process for Federal judges is fair? Do you feel it provides the United States with the best possible judges at the Federal level?

If your answer to either of the above is “no” what process would you suggest?

Scotch or bourbon?

How do I become a Czar? Can I be the husky, middle-aged, small business owner father Czar? Do I have to live in Washington? Do I get Federal benefits?

“God is great, beer is good, and people are crazy” by Billy Cunningham is my current favorite song lyric, what is your favorite lyric(s)?

With unlimited resources would you live where you live today?

If you could play one sport professionally what would it be?

With a million or so Californians on other public payrolls, and the furloughs across the state, how long before lenders start tightening lending to public employees in California?

What percentage of viewers and golfers that are not members of Stewart Cink’s family were pulling for Tom Watson’s putt to drop on 18?

What is your opinion of the “official speaking anonymously because they are not authorized to speak” or “anonymous official speaking without authority” as sources?
With the way Congress leaks through unauthorized anonymous officials why should the CIA or any agency divulge anything to them?

Did you see "Harry Potter" this weekend? Will you see it?

What act of charity or community will you do this week that is purely selfless?

Cookies or Pie?

How Fannie Mae and Freddie Mac Crashed An Economy

Much has been written and spoken about the housing crisis that led our economy into the current recession. Finger pointing abounds and victims and villains are presented to be cuddled or hounded. Early on the media attacks went after the easy targets, swarmy mortgage brokers, greedy Wall Street brokers, etc. I touched on this in my post last week "Curing The Foreclosure Crisis". One major factor in the housing market collapse that has not been mentioned in any reports or stories that I have read is the use of Automated Underwriting Systems (AUS) by Fannie Mae and Freddie Mac and their contribution to an industry writing weaker and weaker loans.

Automated Underwriting Systems came into the mortgage industry in the late 1990's. Fannie and Freddie in an effort to streamline their processes, facilitate the transfer of mortgages from originators to lenders to the GSEs (Government Sponsored Entities: Fannie and Freddie are both private companies with government charters, they can make a profit but are regulated by Congress), and to have their mortgages more uniform in their approval processes, conditions and evidence required for purchase and sale as Mortgage Backed Securities.

To perhaps further your understanding a very quick overview of the path of a mortgage: a mortgage application is taken by an originator, the application package is approved by a lender and if all the conditions are met it is funded, the loan package including the note and grant deed or mortgage depending on state is forwarded to the lender, the lender puts the loan package into a bundle with tens of millions of other mortgages and the bundle is sold to one either Fannie or Freddie depending on how it was underwritten, Fannie or Freddie then bundle this bundle with other bundles and has an offering for investors of bonds or securities, an investor can purchase an investment in Mortgage Backed Securities and receive interest payments and repayment of principal as the mortgagees pay their monthly payments and pay off their mortgages. Someone in Iowa can and does invest in a bundle of mortgages from Wyoming, Hawaii, Vermont, etc.

In the old days....before the advent of the Automated Underwriting Systems in the late 1990s those of us in the mortgage industry used age old methods of obtaining loan approvals for clients. We would meet with the client and fill in an application package by hand, collect W2s, tax returns, paystubs, bank statements, letters of explanation for any blemishes on the credit report and what ever else we felt the clients financial profile needed. We would package these items with an appraisal, title report, credit report and send them to an underwriter. The underwriter would open the file, review all the paperwork we had submitted, and if we did our job correctly would approve the loan for funding using the credit policies and guidelines of Fannie, Freddie, FHA or VA. Every file had proof of income, assets and explanations from the borrowers for any credit dings.

Seeing that perhaps this process could be streamlined and made more efficient using emerging technology, the GSEs developed their AUS, Fannie Mae rolled out Desktop Originator/Underwriter and Freddie Mac brought Loan Prospector to market. Now instead of sending a complete loan package for approval, an originator could input the loan application information into the software program and the program would analyze the data against the guidelines and issue an approval or decline. If the application received approval it would detail what items would needed to be submitted with the loan for final approval and in order for the GSE to purchase the mortgage from the lender (see steps above in the path of a mortgage). We might input the information for a borrower and receive an approval that requires a paystub, most recent year W2, one month of statements to verify funds for closing and reserves and a credit report. Having experience in the industry we knew that borrowers need to have income to debt ratios no higher than 40-42% (percentage of gross income for current debt obligations like credit cards and auto payments plus the new housing obligation).

As with all technology the more it was used the more efficient it became. By 2002 every lender was requiring an AUS approval on loans before they would fund conventional mortgages for sale to GSEs, this happened because the GSEs were requiring an AUS certificate in order to purchase the loans. No more traditional underwriting. So if the AUS approval required one W2 then the underwriter would call for one W2, if the AUS approval called for no W2 and only a paystub then the underwriter would call for only a paystub and no W2. The more transactions and mortgages funded throughout the country with the AUS approvals the more tracking history the system had for credit defaults and foreclosures under certain credit profiles and the more the system was able to adjust documentation requirements for loan approvals. Problem is during this period when the AUS were becoming more and more prevalent in the loan underwriting process, early 2000s on, the economy was starting to grow and home prices started rising--fewer foreclosure risks as troubled borrowers found they had equity and could sell their homes.

Around 2004-2005 we saw a dramatic change in the AUS approvals, coinciding with lenders offering 2nd trust deeds to 100% of the total value of the property. The industry had been using second mortgages to bridge ten percent down payments to reduce the amount of the first or primary mortgage below the magic 80% value level to avoid mortgage insurance, now the lenders with approval from Fannie and Freddie were offering second mortgages covering the entire down payment. As these mortgage products became more prevalent in the industry we saw a loosening, a significant loosening, of the credit guidelines from the GSEs. Because of the purchase agreements between the lenders and the GSEs, if the Automated Underwriting System approved a loan and the lender supplied the documentation required by the AUS then the loan would be purchased.

By this time the technology had advanced to the point that the industry software developers integrated origination processing software, credit reporting companies and the GSEs software so that within fifteen minutes I can complete the necessary information on a loan application, pull a credit report with all three major agencies, submit the information to Fannie Mae and receive an approval listing what items I would need to fund the loan. And the list of those items became less and less. As the credit guidelines from the GSEs became easier and easier more people could qualify to purchase a home. Many originators and lenders were not analyzing whether it made sense for a family to purchase the home they were buying based on their actual financial ability, but rather were inputting information into the AUS to get an approval and close the loan. And houses flew off the market. Borrowers would shop originators to find one that would approve them. Real estate agents knew which originators were "loose" and which were more strict and analyzing and refer accordingly. Borrowers, originators, agents, all over the industry with prices exploding people were chasing homes and commissions, and they were aided and abetted by Fannie and Freddie.

At the height, or depth, of the loose guidelines it was astounding the mortgages being approved through Fannie and Freddie. Borrowers with no money down, a seller paying closing costs and little to no reserves would be approved and the approval would require no income verification, merely a phone call to the employer to verify the applicant was still employed, no verification of assets and NO appraisal! Yes, the AUS technology evolved to the extent that they also included sales data and for most areas the system would pull comparable closed sales and if the price on the application was within the market range no appraisal, or perhaps a drive-by to make sure the house was there, would be required.

Further with no income verification borrowers with income to debt ratios in excess of 60% (sixty percent) would be approved; this means for a family they would have 40% of their gross income after paying their mortgage payment, car payment(s), student loans and credit cards to pay for shoes, groceries, electricity, income taxes...Applicants with below median FICO scores and no downpayment would be approved with verbal verification of income and no assets--individuals who have shown a history of difficulty managing their credit obligations would be given loans for a home in which they had no equity stake. Oh, and one more thing most of these loans were interest only mortgages with the interest only payment used for the qualifying guidelines--no equity at closing and no equity in the mortgage payments.

As the technology and the efficiency it allowed became more ingrained in the system lenders on "jumbo" mortgage products--those with loan amounts above the Fannie and Freddie guidelines--also used the AUS approval findings for their mortgage products, expanding the loose standards through more of the mortgage products being funded. Lenders on second trust deeds and home equity lines of credit also jumped on the AUS bandwagon--the entire industry was basing their approvals and fundings on the ever loosening guidelines established by Fannie Mae and Freddie Mac. Guidelines we know were loosened at the behest of Congress and in particular the two most vocal and ardent supporters of Fannie and Freddie Rep. Barney Frank from New York and Senator Christopher Dodd from Connecticut. Their desire to expand homeownership down the income and economic scale so more Americans could participate required looser and looser credit standards to fit those with below median incomes into a housing market where the median prices were soaring.

All of these mortgages were approved by the Automated Underwriting Systems, guaranteed for purchase by Fannie Mae and Freddie Mac and sold to investors as Mortgage Backed Securities. Well to no surprise when the credit markets tightened with the first domino being a sub-prime lender failing to obtain credit on Wall Street, investors began to look at their mortgage portfolios and those who held securities backed by Fannie Mae and Freddie Mac approved mortgages began to see that what they were invested in were actually sub-prime mortgages packaged as conventional, traditional mortgages. Uh-oh. What investors and investigators found was what those of us in the industry knew--a tremendous percentage of the "conventional" mortgages funded were actually sub-prime mortgages packaged by Fannie and Freddie as "A+" paper approved by either Desktop Originator or Loan Prospector.

Fannie Mae and Freddie Mac, and their leaders through the time period, have not received near enough credit for their role in the housing and credit crisis that began in 2007. An overwhelming number of foreclosures on the market are loans that were funded under Fannie and Freddie guidelines with AUS approvals. An overwhelming number of foreclosures had no down payment when purchased, or were refinanced up to or over 95% of the then value of the home using AUS approvals. If every mortgage for every home that has been foreclosed upon or is currently going through foreclosure is analyzed one would see that every one that was a Fannie or Freddie mortgage has an AUS approval in the file and the documentation matches what the approval called for when it funded: verbal verification of employment, drive-by appraisal, nothing more.

Congress is big on investigating, or threatening to investigate, their political enemies or those who they feel will make for good television (think of the baseball steroid hearings). If Congress truly wanted to investigate what led to our current economic cycle that was started by a collapse of the credit and housing markets they should start with a detailed investigation of Fannie Mae and Freddie Mac and who was responsible for loosening credit guidelines to the extent they were loosened. Until they do this, any measures or policies they impose, any statements they make laying blame on others, any investigations they do of any part of the industry that is not Fannie or Freddie is grandstanding. But we know that is what those in Washington do best.

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