In a recent press release, Jamie Radtke, candidate for the Republican nomination for U.S. Senate, called for the abolition of mortgage giants Fannie Mae and Freddie Mac. Radtke promised to work for legislation that transitions Freddie and Fannie into completely privately owned entities and “get(s) the government out of the mortgage banking business.” She also called former Senator George Allen out for refusing to support reform of Freddie and Fannie while accepting campaign contributions from their lobbyists.
Government Sponsored Enterprises (GSEs), Freddie and Fannie, were a driving force behind the housing crisis that, in large part, precipitated the current recession. Taxpayer bailouts of these GSEs could reach $363 billion, according to a Federal Housing Finance Agency report released last year.
From his powerful position as ranking member, and later Chairman, of the House Financial Services Committee, former Congressman Barney Frank protected Fannie and Freddie from legislation designed to increase scrutiny of its operations. While the Bush administration pushed for reform of the GSEs, Frank not so subtly accused Republicans of racism and of not wanting low-income individuals to be able to obtain affordable housing. Regulations and mandates pushed by Frank forced banks to make housing loans to individuals who could not afford them, loans that were backed by the GSEs. In 2003, he famously claimed “These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis,” and stated that reports of instability were exaggerated. Frank also drew fire for helping his then boyfriend, Herb Moses, obtain a job with Fannie Mae and voting on legislation affecting the GSE while the two were involved.
Frank wasn’t the only legislator holding up reform of Freddie and Fannie, however. In the then Republican-controlled Senate (2005), a reform measure sponsored by Chuck Hagel (R-NE), passed through the banking committee on a party line vote. However, Sen. Majority Leader Bill Frist never allowed a vote on the bill. Allen was not one of the 26 senators to sign a letter to Frist asking him to bring the bill to the floor, according to an AP story from 2008. Allen was apparently lobbied against the bill by a major campaign donor.
In this situation, Allen did nothing unusual or unethical. There could have been any number of reasons why he did not support regulatory reform of Freddie and Fannie, none of them nefarious. Clearly Radtke has the benefit of hindsight on this matter. However, the fact remains that while 26 US Senators tried to get the Senate to act on a regulatory reform measure, Allen did nothing.
Today, even Barney Frank is on record saying that Freddie and Fannie “should be abolished.” Of course, unlike Radtke proposes, Frank wouldn’t divest the taxpayers of these failed enterprises and return them to the private sector. For those who believe in government above all else, the solution to one failed big government enterprise is doubled down government control.
The question remains, with the benefit of hindsight and knowing Fannie and Freddie’s role in the housing crisis, what would George Allen propose for the federal government’s role in the mortgage markets? What regulations? What mandates on banks? What oversight? What backing for loans? I’ve looked at his recently released “Blueprint” and I don’t see anything on this important issue.
