When housing advocates sell out bad things happen

I’ve been complaining about it for years,  Now that the New York Times has said it maybe folks will take stock.

The housing advocacy community sold out to Fannie Mae.

They stopped doing their jobs to hold this crucial housing institution accountable for meeting its obligations to provide for the housing needs of low and moderate income Americans. Now look at the fix we are in.

On July 13, Julie Creswell wrote in a NYT story…

Mr. Johnson [then president of Fannie Mae] ramped up the influence of its charitable arm, the Fannie Mae Foundation, by doling out money to thousands of nonprofit groups and similar organizations. (Mr. Johnson was compelled to step down as the head of Senator Barack Obama’s vice-presidential search team last month after he was criticized for receiving mortgages on favorable terms from Countrywide Financial.)

Fannie and Freddie also forged alliances with various interest groups, including affordable-housing advocates that previously criticized the companies for not doing enough for low- and middle-income homeowners.

The silence of housing advocates related to Fannie Mae has been deafening and perplexing if one does not know what the Fannie Mae Foundation was up to.  Consider the facts.

Congress directed the U.S. Department of Housing and Urban Development (HUD) to develop a set of national lending performance goals for the GSEs. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 requires HUD to establish three affordable housing goals for each of the GSEs. The Act directs HUD to recognize “the ability of the enterprises [GSEs] to lead the industry in making mortgage credit available for low- and moderate-income families.”

These housing goals are intended to measure and encourage the GSEs’ support for very low-, low-and moderate-income lending as well as lending in underserved geographic areas. Congress gave HUD the responsibility of monitoring and reporting on GSE performance in meeting these goals.

Congress clearly intended the GSEs should use their power to profoundly influence the availability of home mortgage credit to these targeted homebuyers. Section 1302 of the Act provides that the GSEs have an “affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families.”

What the GSEs were expected to do was to evaluate the creditworthiness of these underserved populations and come up with a safe and sound lending product that should have been the alternative to the irresponsible subprime and predatory lending that instead emerged.

Based on their advocacy and oversight in related (non GSE) housing issues that were of far less consequence one would have expected housing advocates to have followed HUD’s oversight of the GSEs and their proposed housing goals aggressively.  But HUD’s pitifully weak affordable housing goals for the GSEs and the failure of HUD to require compliance with the HUD goals drew hardly any attention from the housing advocacy community. Fannie Mae even got away with taking credit for buying a bunch of awful subprime mobile homes loans from the now failed, and infamous, lender Conseco and claiming these loans toward meeting the HUD affordable housing goals. These loans ultimately suffered huge default rates.

Let me emphasize that the goal was not to have the GSEs engaged in irresponsible subprime lending but to use their unique position to evaluate loan performance of these underserved populations and come up with a lending product that was safe and sound and get it into the market as an alternative to irresponsible subprime lending.  But Fannie Mae never even tried.  Instead they bought up the worst, most irresponsible subprime loans available and claimed them as credit toward meeting their HUD lending goals.

Fannie Mae got a free ride from the housing advocacy community for two reasons;

1. Fannie Mae become the darling of Democrats by giving jobs to lots of predominate Democrats.  Advocates seem to always cut their Democratic friends too much slack; and
2. More importantly Fannie Mae, through its Fannie Mae Foundation passed out money to housing advocates like candy. Advocates took the money and convinced themselves they would not let the money corrupt them. Then they rationalized that there were better things to do than to keep Fannie Mae’s feet to the fire over affordable housing goals.

In hindsight it is plain that the lack of attention to Fannie Mae and Freddie Mac permitted the GSEs to ignore the lower income home lending markets which, in turn, contributed greatly to the rise of subprime and predatory lending.  Private subprime lenders moved in and filled the vacuum left by the failure of the GSEs to meet even the modest affordable housing goals established by HUD.

Advocates knew this was happening but almost all chose to ignore it for fear of jeopardizing the funds from the Fannie Mae Foundation.

I saw this first hand as I tried to get support to press Fannie Mae to respond to a report that my organization prepared that was highly critical of Fannie’s lending in lower income neighborhoods, to minority borrowers and to lower income borrowers in Dallas.  I could get no support from traditional housing advocate allies. Many were not shy in telling me that the reason was their funding from the Fannie Mae Foundation.

Fortunately, the Fannie Mae Foundation is out of business (or at least sort of) in the wake of the departure of a wave of chief executives due to financial scandals at Fannie Mae.  Fannie Mae continues to provide funds to housing advocates through direct corporate giving however.

Tragically, the housing advocacy community has never owned up to the consequences of their willingness to withhold their scrutiny of this critical player in housing finance for the sake of some grant funds.