What About Fannie Mae Millionaires?

What About Fannie Mae Millionaires?

October 24, 2011
Originally published in National Review Online

‘They are . . . not interested in asking millionaires and billionaires to pay a half a penny on the dollar for the sake of the future of our children and communities.”

That was the reaction of Sen. Bob Menendez (D., N.J.) upon the defeat Thursday evening of the bill he sponsored that paired an element of President Obama’s jobs plan — funding for the hiring of some first responders and hundreds of thousands of unionized teachers — with a surtax on those earning more than $1 million.

Yet that same evening, Menendez and his fellow Democrats — as well as self-proclaimed socialist senator Bernie Sanders — voted unanimously to protect subsidies for millionaires’ mortgages. In fact it was another measure Menendez himself sponsored: an amendment to an appropriations bill that will allow Fannie Mae, Freddie Mac, and the Federal Housing Administration to back home loans as large as $729,750. With help from a handful of Republicans, his measure cleared the Senate 60–38.

This “conforming loan limit,” the maximum for mortgages Fannie and Freddie can buy and the Federal Housing Administration can insure, had expired at the end of September and reverted to $625,500. But Menendez proclaimed that Congress must raise the limit back to almost three-quarters of a million dollars in order to save the “middle class.” Not raising the limit “makes it harder for middle class homebuyers to get credit when credit is tight,” Menendez said.

But this definition of middle class is pretty, shall we say, rich. As a Wall Street Journal editorial noted, “the average sales price for existing homes in September was $212,700.” And even in Menendez’s home state of New Jersey, the median sale price of homes was only $303,100 in August, as calculated by Zillow.com, a prominent real-estate website. This amount is less than half of the $729,750 limit Menendez and the other Democrats said was necessary to protect the “middle class.”

If this increased loan limit becomes law, it would mean that purchasers of these expensive homes — millionaires and near-millionaires almost by definition — could save thousands of dollars from below-market interest rates thanks to government guarantees. Yet so far, there have been few if any condemnations of this government privilege for the wealthy from groups involved in the supposedly populist Occupy Wall Street. And this — as well as the movement’s general silence on the government-sponsored enterprises Fannie and Freddie’s outsized role in the financial crisis — exposes the stink of hypocrisy (on top of the many other reported scents) from much of the OWS movement.

Just after Menendez and the ostensibly conservative Johnny Isakson (R., Ga.) introduced the measure last Wednesday, I held out an olive branch to OWS. I wrote on the Corner that since both OWS and the Tea Party claim to despise “corporate welfare and bailouts that benefit the very wealthy . . . both movements should rally strongly” to oppose the Menendez-Isakson amendment.

By and large, Senate Republicans remembered the tea-party message. Only seven joined Isakson in backing the higher limits. Those GOP guys and gals — Isakson, his Georgia colleague Saxby Chambliss, Roy Blunt (Mo.), Scott Brown (Mass.), Lindsey Graham (S.C.), Dean Heller (Nev.), Lisa Murkowski (Alaska), and Olympia Snowe (Maine) — have certainly earned a spot on the Corporate Welfare and Crony Capitalism Wall of Shame. (And Isakson, Chambliss, Brown, Graham, and Snowe already have a spot on the wall from their support of Dodd-Frank’s Durbin Amendment price controls, which benefit big retailers and shift costs to consumers in the form of new bank fees.)

But this group of eight represents less than one-sixth of the GOP caucus of 47 senators. By contrast, all Democrats on the Senate floor voted for these subsidies to the rich. (See vote tally on page S6483 of the congressional record here.) In a February white paper, the Obama administration had commendably recommended letting the loan limit expire so “larger loans for more expensive homes will once again be funded only through the private market.” But the White House apparently made little effort to persuade its own party in the Senate.

What about independent Vermont senator Bernie Sanders, who proudly calls himself a socialist and proclaims his solidarity with Occupy Wall Street? He voted to support these subsidies for those at the top, at the expense of the 99 percent.

So far, Sanders’s hypocrisy is similar to that of much of OWS on the government-sponsored enterprises. “I wish they would occupy Fannie and Freddie,” said CNBC reporter Michelle Caruso-Cabrera on HBO’s Real Time with Bill Maher.

In New York and Washington, D.C., the occupiers have been everywhere from the Brooklyn Bridge to the Smithsonian Air and Space Museum. But there have been few if any signs, let alone tents, in front of the palatial-like headquarters of Fannie in D.C. or at Freddie’s sprawling office in the tony suburb of McLean, Va. When it comes to the hundreds of billions Fannie and Freddie still owe to U.S. taxpayers, as opposed to the TARP money largely paid back by the Wall Street financial firms, there is a drum beat of deafening silence from OWS.

This is despite voluminous new data showing that Fannie and Freddie led, rather than followed, in the creation of reckless mortgages and mortgage instruments. In their new book, Reckless Endangerment, New York Times financial columnist Gretchen Morgenson and market analyst Joshua Rosner write that Fannie “led both the private and public sectors down a path that led directly to the financial crisis of 2008.”

In the Times, Morgenson has written that Fannie and Freddie were the “biggest and most steadfast collaborators” of the notorious Countrywide Financial. Fannie “assiduously . . . pursued Mr. Mozilo and 14 of his lieutenants to make sure the company continued to shovel loans its way,” according to Morgenson. In 2004, Countrywide “sold 26 percent of the loans Fannie bought,” she reported.

At the end of their book, liberals Morgenson and Rosnernote note with dismay, as have many conservative critics, that the Dodd-Frank financial “reform” doesn’t lay a glove on Fannie and Freddie. Sooner or later, OWS will have to address two financial elephants in Zuccotti Park. If they don’t, they might as well be occupying a cloud.