The article A Mortgage Tornado Warning, Unheeded comes from The New York Times.
LIKE most people, Nye Lavalle had little interest in the mortgage industry until things got personal. Raised in comfortable surroundings in Grosse Pointe, Mich., just outside Detroit, he began his business career in the 1970s, managing professional tennis players. In the 1980s, he ran SMG, a thriving consulting and research firm.
Then he tried to pay off a loan on a home his family had bought in Dallas in 1988. The balance was roughly $100,000, and the property was valued at about $175,000, Mr. Lavalle said. But when he combed through figures provided by his lender, Savings of America, he found substantial discrepancies in the accounting that had inflated his bill by $18,000. The loan servicer had repeatedly charged him late fees for payments he had made on time, as well as for unnecessary appraisals and force-placed hazard insurance, he said.
Mr. Lavalle refused to pay. The bank refused to bend. The balance rose as the bank tacked on lawyers’ fees and the loan was deemed delinquent. The fight continued after his mortgage was allegedly sold to EMC, a Bear Stearns unit.
Unlike most people, Mr. Lavalle had the time and money to fight. He persuaded his family to help him pay for a lawsuit against EMC and Bear Stearns. Seven years and a small fortune later, they lost the house in Dallas. Back then, judges weren’t as interested in mortgage practices as some are now, he said.
The story ties mortgage fraud back to abuses at Fannie Mae or its subcontractors. This report seems to contradict my earlier claims that the shoddy mortgage practices did not originate at the government agencies like Fannie Mae, but started in private industry and were reluctantly adopted at Fannie Mae. I was specifically talking about mortgage origination fraud of liar loans claimed to be mortgages meeting the standards of due diligence for giving out loans. The fraud detailed in this article is on a different end of the process, but it certainly damages the credibility of Fannie Mae.
Thus begins my process of looking for evidence that refutes my prior belief in the relative innocence of the federal agencies. Another example of the need to be wary of confirmation bias. It is not enough to find evidence that supports your beliefs. It is also important to look for evidence that refutes your beliefs. Still the search must be careful. If my new belief is that my original belief was wrong, then searching only for evidence of how wrong I was is just confirmation bias on the other side.
As Kermit the frog might have said, “It’s not easy finding the truth.”
The Bloomberg/Business Week article, Gingrich Ties to Fannie, Freddie Said to Extend to Speaker Days, has some interesting things to say about the history of Fannie Mae. For the relation to this blog post, I picked out the following information:
Gingrich expressed support for Fannie Mae, traveling to Atlanta in 1995 to help open a Fannie Mae office promoting home ownership for low- and moderate-income families.
In a press release issued at the time, Gingrich said, “Fannie Mae is an excellent example of a former government institution fulfilling its mandate while functioning in the market economy.”
The reason for my interest in this is that it sets a date before which we know that Fannie Mae was changed from a purely government agency to a government-sponsored enterprise.
OK, this has prompted me to stop being lazy and just look it up in WikiPedia.
The Federal National Mortgage Association, commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968.
I was surprised to learn that it has been a publicly traded company from as far back as 1968.
The information in WikiPedia is supported by the article A Brief History of Fannie Mae and Freddie Mac from Time magazine. It is eye opening to see how far reaching are some of the good and bad decisions of government. Some of the late 1960s criticisms of the Republicans against Fannie and Freddie may have been timely back then. It may be that the responses to fix those criticisms turned out to be not so good in the long run.