Blog readers know that I’ve cited Gretchen Morgenson’s financial services writing and often agreed with the NYT business columnist’s commentary.
But not this time.
Her new book came out last week and rather than anything original in her analysis of the 2008 financial Armageddon, she—and co-author Josh Rosner—turn this thin screed into an ad hominine attack on Fannie Mae’s Chairman Jim Johnson and the company’s efforts to achieve its statutorily mandated low and moderate income housing finance goals.
Johnson was Fannie’s Chairman and CEO from 1991 to 1998. In that time, a series of regulatory changes increased those stiff goals for both Fannie and Freddie to more than 50% of annual business volume. Johnson made it his primary objective to realize or exceed those annual goals leading a variety of business, communications, marketing and political actions to do so.
Unfortunately, Morgenson‘s book represents nothing more than another Conservative secondary mortgage market systemic, suggesting that Johnson’s Fannie Mae leadership providing mortgage finance for low and moderate income Americans—as the Congress required Fannie Mae and Freddie Mac to do—was the catalyst for the 2008 national and international financial meltdown. Fannie and Freddie did play a part in that catastrophe, but not the one she suggests.
Johnson Long Gone by 2008
Morgenson and her posse ignore that Johnson was almost 10 years gone from Fannie Mae when the 2008 mess, which had Wall Street DNA all over it, percolated to the surface. She stretches credulity by trying to tie Jim Johnson to those events. The poor quality Fannie assets, which quickly failed, were brought in more than five years after Johnson was gone.
Contrary to Morgenson’s book and other critics, Fannie Mae’s low income lending, when Johnson was chair--as evidenced by documentation filed publicly with its regulator and the Securities and Exchange Commission—was fabulously successful and showed amazingly small default and foreclosure losses, which continued for years after Johnson departed Fannie Mae in 1998.
This means that people who took out those loans, successfully made those mortgage payments and stayed in their homes.
This business information—supplied by the Federal Housing Finance Agency (FHFA) Fannie and Freddie’s regulator—makes the case far better than I that the low income lending occurring under the Johnson leadership was both responsible and well underwritten.
FHFA and SEC Reports Torpedo Morgenson's Claims
The spectacularly low “serious delinquency rates”--covering all of Fannie’s business lines-- during the Johnson years are covered on page 26 of a FHFA report found here.
FHFA reported that the highest that the Fannie Mae “serious delinquency rate” (90+ days) got was 0.62% in 1997. That’s less than two thirds of one percent, a figure most financial services companies would delight in having.
The FHFA report says that the both companies reduced their credit losses (charge-offs plus foreclosure expenses) for a third consecutive year in 2000 to extremely low levels. "Credit losses for Fannie Mae fell 28 percent to just $89 million, 0.007 percent of the Enterprise’s average total mortgage portfolio."
The most recent Fannie Mae 10-K report—filed in February 2011-- amplifies this and goes even further towards under cutting Morgenson’s questionable demonizing of Johnson’s work.
Between 1991 and 2003, under Jim Johnson and Frank Raines, the mortgages Fannie Mae acquired between 1991 and 2003 remain profitable today. This means that the loans Fannie acquired on Johnson’s watch and those of his immediate successor were quality with minimal defaults and not ticking time bombs.
See link below and Page10; read the easily understood table from the Fannie Mae’s 2010 10-K.
Morgenson’s Book is a Drive-By Political Shooting
The book, suggesting somehow that Fannie’s business was bad, is nothing more than a literary drive-by shooting, possibly the latest from the old GOP attack machine, which tried to use the same tactics against Barack Obama in 2008, blaming Fannie Mae for blossoming financial destruction which happened on George W. Bush’s watch..
Jim Johnson joined Fannie Mae in 1991, after serving as a major consultant to the company for two years. He retired as Chairman and CEO in 1998 and was succeeded by Frank Raines, who left Fannie in 2004.
As someone who was on the Fannie political front lines—along with many others—in the Johnson era, when attacks from the right (primarily) and the left (occasionally) never abated, Jim’s leadership of the company, it’s success, and the role it played in increasing homeownership for millions of American families, including large numbers of minorities, were extraordinary.
But, Ms. Morgenson, once the press secretary for unsuccessful presidential candidate Steve Forbes, trying to understand the era and home ownership issues present, takes up the tired old GOP rhetoric of Peter Wallison, the AEI, the Wall Street Journal, and the conservative Right, indicting Fannie’s affordable lending and Johnson, attributing to them evils which exist only in their own minds.
Someone needs to remind Morgenson, Rosner and that ilk that Fannie and Freddie were given their “affordable housing mission,” because banks, savings and loans and mortgage companies—presumably Ms. Morgenson’s desired mortgage industry managers--couldn’t be relied on to serve the poor and minorities.
Both the homeownership number and loans to those groups all grew after F&F started their work. But Morgenson’s clique ignores those realities.
Johnson/Fannie a Success and it Wasn’t Easy
As they say in baseball, Johnson “didn’t just throw his glove on the mound and pitch a shutout.” It took work and effort to lead. Johnson and his team had to sell and sell hard to get the lending community ready to originate the voluminous loan amounts Fannie and Freddie would need to achieve those lofty goals.
Consumers had to be made aware of the new and expanded mortgage borrowing opportunities. Realtors, lenders, and others in the business needed to work harder and—in some cases—in concert to do things that, while mutually beneficial, were different from the ways that they had done business.
And business analysts, federal regulators, and Congress had to support both Fannie and Freddie, as they developed new systems, products, and technology—often in the face of business and political opposition--to accomplish the job.
Johnson willingly took on those challenging roles to help his company meet those statutory mandated goals.
Five or so years into Fannie’s Johnson led efforts, any number of financial service companies had cloned communications and ad campaigns like Fannie’s, stressing homeownership, neighborhoods, and the success which comes from fostering that.
Look Carefully at Fannie’s Post 2004 Years, Compare and Judge Results
However, more than 20 years of solid business achievement--started in the early 1980’s by David Maxwell, accelerated by Jim Johnson, and continued by Frank Raines--was obliterated when Fannie and Freddie future manages lost sight of their core housing missions and instead invested billions of dollars in Wall Street created private label subprime securities (PLS), chasing previously lost mortgage market share and revenue, ironically lost to the same Wall Street businesses.
In choosing that dodgy course, after the Raines’ years and long after the Johnson era, both Fannie Mae and Freddie Mac gave ammunition to their critics; squandered the immense national respect and goodwill, so tenaciously secured by previous chairmen; and lost billions and billions of shareholder dollars until the Bush Administration started pumping in taxpayers’ money into each in 2008 (the first explicit F&F federal financial support, ever).
(Gretch, you can dislike the man’s politics and disrespect his career choices, but if you plan to bash him for Fannie’s low income lending successes, at least employ facts not ideologically driven hyperbole.)
The valueless PLS which Fannie’s new managers acquired after 2004—which still bleed--is what doomed the company.
For those not familiar with GSE history, those red ink laden mortgage and mortgage security acquisitions came seven years after Johnson left and two years after Raines departed. At that time, Dan Mudd was Fannie’s CEO, while Dick Syron headed Freddie.
These facts I offered may never silence the critics about Fannie’s low income lending, since they always can point to the mistakes made by Mudd and others.
Trying Unsuccessfully to Sabotage a National Inquiry Commission
But, it also is worth noting as I have in previous blogs, that Morgenson’s main themes--and similar allegations by the AEI’s Peter Wallison and Ed Pinto, that Fannie Mae put low quality loans on its books throughout the 1990’s--were rejected in writing in the Financial Crisis Inquiry Commission’s (FIRC) final report.
Peter Wallison was a GOP member of FIRC. He tried to front run the Commission and put out his own report early, which not surprisingly singled out Fannie and Freddie as major culprits, but refused to even mention the phrase “Wall Street”—let alone assign any blame to the investment banking community--in his tortured history of the financial debacle.
I just hope I am around when the Congress, still frustrated over how to handle systemic mortgage finance issues—especially as Freddie and Fannie round into financial health—decides that something similar to the current mortgage finance system (without the explicit Treasury support) should be the order of the day.
When it occurs, I promise my conservative friends not to smirk…..well maybe a little.
Maloni, May 30, 2011