Barney Frank - Opposition to housing market reform

Summary of Controversy

Congressman Barney Frank was the senior Democrat on the House Financial Services Committee for many years and has been the Chairman of that committee since the Democrats took the Majority in 2007 after the 2006 elections.  The committee directly oversees Fannie Mae and Freddie Mac.  When questions first began to surface concerning a possible bubble in the housing industry, Congressman Frank stated that a bubble in the housing market was not possible and that his continued goal was the promotion of affordable housing for low income families.  He opposed regulating the government entities Fannie Mae and Freddie Mac.

After the crash, Congressman Frank made statements claiming that conservatives were to blame for the pushing home ownership onto low income families.  He also declared it was him who was pushing for regulation all along.

 

Statements Opposing Regulation

(Text taken directly from NYT)

On September 10, 2003, the Bush administration recommended regulatory overhaul in the housing finance industry.  The overhaul was to create a new agency within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac.  The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws. 

After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal ousing Enterprise Oversight,'' the independent agency that now regulates the companies.

''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.

 

Among the groups denouncing the proposal were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

Representative Barney Frank, currently the senior Democrat in the House Financial Services Committee, stated the following in response to the new proposal:

These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis.  The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.
 

 

When Treasury Secretary John Snow tried to push for the regulatory body, congressman Frank responded

Fannie Mae and Freddie Mac are not in a crisis...the more people in my judgement that exaggerate the threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the treasury which I do not see...I think we see entities which are fundamentally sound...the more pressure that is there, the less I think we see in affordable housing  

 

In October of that year, the Washington Post paraphrased Congressman Frank as stating that he supports giving (the) Treasury (Department) responsibility for making sure that Fannie and Freddie operate in a manner that doesn't pose a risk to the economy or taxpayers. But he opposes giving Treasury the right to approve or disapprove business activities. He said he worries that Treasury would sacrifice activities that are good for consumers in the name of lowering the companies' market risks.

 

On the congressional floor on July 27, 2005, Congressman Frank made the following remarks when talking about "National Home Ownership Month":

 

Statement Supporting Regulation

April 20, 2009, Congressman Frank appeared on PBS with Tavis Smiley, and claimed that the cause of the housing bubble was the "conservative" idea that renting was a bad thing.

 

Tavis Smiley then asked:

But how does that ultimately lead to home ownership because, you can't tell me you want to sell those people short on the American dream?

 

Congressman Frank then responded

Well, it may not lead to home ownership.  I don't want to sell them short, I want to recognize though Tavis that they may come up short.  Pretending people can do something they can't do is no favor for them.  I with we could do something about income inequality in America and I'm for that.  I would like to get better education all up and down the social sphere so people can earn more money.  I'd like to drive down the cost of housing.  But the point.. when people are making frankly 30 or 40 thousand dollars a year in much of this country, they're not going to be able to afford a home and if you pretend that they can, you are going to get them into trouble.

 

In an interview with Bill O'Reilly, Congressman Frank declares that he was attempting to enforce regulations all along and that this was done when they reclaimed power in 2006.

References

[1] Website: The New York Times Article: New Agency Proposed to Oversee Freddie Mac and Fannie Mae Author: STEPHEN LABATON Accessed on: 04/05/2010

[2] Website: Washington Post Article: White House, Lawmakers Disagree on New Oversight Author: Kathleen Day Accessed on: 04/05/2010

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