SEC Bringing Civil Charges Against Former Fannie Mae and Freddie Mac Officials

The Securities and Exchange Commission has brought a civil fraud suit against six top officials at the lending giants Freddie Mac and Fannie Mae alleging that the officials misled the government and taxpayers about risky subprime mortgages the mortgage giants held during the housing bust.

Those charged include the agencies' two former CEOs, Fannie's Daniel Mudd and Freddie's Richard Syron. They led the companies when the housing bubble burst in late 2006 and 2007. The four other top executives also worked for the companies during that time.

The case was filed in federal court in New York City.

The SEC has entered into agreements with Fannie Mae and Freddie Mac over the scope of the suits and what may be accomplished. It's severing liability from the government-sponsored enterprises (GSEs) and seeking to place liability on the individuals in key decision-making positions:

Fannie Mae and Freddie Mac each entered into a Non-Prosecution Agreement with the Commission in which each company agreed to accept responsibility for its conduct and not dispute, contest, or contradict the contents of an agreed-upon Statement of Facts without admitting nor denying liability. Each also agreed to cooperate with the Commission's litigation against the former executives. In entering into these Agreements, the Commission considered the unique circumstances presented by the companies' current status, including the financial support provided to the companies by the U.S. Treasury, the role of the Federal Housing Finance Agency as conservator of each company, and the costs that may be imposed on U.S. taxpayers.

Three former Fannie Mae executives - former Chief Executive Officer Daniel H. Mudd, former Chief Risk Officer Enrico Dallavecchia, and former Executive Vice President of Fannie Mae's Single Family Mortgage business, Thomas A. Lund - were named in the SEC's complaint filed in U.S. District Court for the Southern District of New York.

The SEC also charged three former Freddie Mac executives — former Chairman of the Board and CEO Richard F. Syron, former Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius — in a separate complaint filed in the same court.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. "These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

The SEC is seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against Mudd, Dallavecchia, Lund, Syron, Cook, and Bisenius. Both lawsuits allege that the former executives caused the federal mortgage firms to materially misstate their holdings of subprime mortgage loans in periodic and other filings with the Commission, public statements, investor calls, and media interviews. The suit involving the Fannie Mae executives also includes similar allegations regarding Alt-A mortgage loans. The suit against the former Fannie Mae executives alleges they made misleading statements — or aided and abetted others — between December 2006 and August 2008. The former Freddie Mac executives are alleged to have made misleading statements — or aided and abetted others - between March 2007 and August 2008.

The key fact that will be at issue is how these officials misled the public by claiming that their respective companies' exposure to the subprime mortgage mess was far smaller than it actually was.

It was the implosion of the subprime mortgage market that sent a shaky economy into a recession of unprecedented levels.

Obama Administration Proposes Major Revision To Fannie Mae and Freddie Mac

With all the news coming out of Egypt, it's easy to overlook major news stories domestically. This is perhaps one of the biggest stories of the day.

WASHINGTON — The Obama administration released a broad outline on Friday for the future of housing finance in the United States, calling for a substantial reduction in government support for the mortgage market but providing few concrete details about how it should be accomplished.

In a 31-page report, the administration proposed that the two mortgage lending giants, Fannie Mae and Freddie Mac, should be gradually abolished within 10 years at most, and it gave Congress three options for reducing the government’s role in supporting homeownership. It did not recommend an option; instead, the document was intended to set parameters for what is certain to be a heated and protracted debate.

There's no word on how this transition will take place, or how much money this will ultimately cost taxpayers, but it does show that the Administration understands that the existing housing/real estate/mortgage scheme is unworkable.

Under one option, the government’s historically dominant role in insuring or guaranteeing mortgages would shrink substantially, and would be limited to support for creditworthy borrowers with low and moderate incomes. The other two options would preserve a role for the government as an insurer of mortgages — but only in times of financial turmoil, under one possibility.

Fannie and Freddie, which were placed in government conservatorship in September 2008, along with the Federal Housing Administration currently guarantee more than 90 percent of all new mortgages. The F.H.A. alone guarantees about 30 percent, compared with a historical norm of roughly 10 percent to 15 percent.

The first option would limit the government’s role in insuring or guaranteeing mortgages to programs targeted at creditworthy borrowers with low or moderate incomes. It would let capital flow from housing to other sectors of the economy, reduce systemic risk and minimize taxpayer exposure to potential losses. Under this option, mortgages for most Americans would be significantly more expensive.

Housing Market Still Reeling From Gov't Intervention

The housing market is still reeling from the government intervention and distortion of the lending market, but the only consolation from proponents of that policy is that they contend things could have been even worse had the federal government not moved to prop up the collapsing credit market.

While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government's newly dominant role -- nearly 90 percent of all new home loans are funded or guaranteed by taxpayers -- has far-reaching consequences for prospective home buyers and taxpayers.

The government has the power to decide who is qualified for a loan and who is not. As a result, many borrowers among both poor and rich are frozen out of the market.

Nearly one-third of those who obtained home loans during the boom years of 2005 and 2006 couldn't get one today, according to mortgage industry analysts. Many of these borrowers were never really able to afford their homes and should not have gotten loans. But many others could, and borrowers like them are now running into tougher government standards.

At the same time, taxpayers are on the hook for most of the loans that are still being made if they go bad. And they are also on the line for any losses in the massive portfolios of old loans at Fannie Mae and Freddie Mac, which own or back more than $5 trillion in mortgages.

There is growing evidence that many loans being guaranteed by the government have a significant risk of defaulting. Delinquencies are spiking. And the Federal Housing Administration, another source of government support for home loans, is quickly eating through its financial cushion as losses mount.

All the efforts to increase the percentage of Americans who were homeowners has been a failure. Lax lending standards allowed the rate to rise to 69.3%, but that was a bubble of epic proportions, since many of those who were borrowing to buy homes had no way to pay for them once terms on adjustable rates rose above their initial teaser rates. With the shakeout in the real estate market, the homeownership rate sagged back to 67.4%, which is little different than had the lenders utilized more conservative and traditional lending terms.

The tighter lending standards chafe at those who wanted to expand homeownership, and those who thought that expanding homeownership among minorities was a laudable goal. Of course, the economics of such moves were never considered, let alone the fact that these people lacked a way to pay for the homes and couldn't meet even reduced lending standards.

The move to higher lending standards will infuse the markets with a dose of fiscal realism and safer lending and credit.

Still, there are huge problems, including the fact that taxpayers are on the hook if even a small percentage of Fannie Mae or Freddie Mac loans go bad. The taxpayer hit? You don't want to know:

Taxpayers could be hit with a staggering tab even if a small proportion of loans go bad. Fannie and Freddie now own or guarantee more than $5 trillion in home loans. (That equals two-thirds of the debt the U.S. government owes.)

And many could be in trouble. Mortgages owned and backed by the companies often required down payments of no more than 10 percent. With housing prices down sharply, many borrowers are underwater, owing more than their home is worth, so they cannot sell or refinance to pay off troubled loans.

As the economy has deteriorated, delinquencies are spiking and losses are mounting. In the past year and half, the companies have posted more than $150 billion in losses.

Similar risks threaten to engulf FHA. Nearly 8 percent of FHA loans at the end of June were either 30 days late or in the process of foreclosure, according to the Mortgage Bankers Association. That compares with 5.4 percent of such loans a year ago.

As a result, FHA has been exhausting much of its loss reserves, which are funded by premiums paid by borrowers. The reserves currently stand at an estimated 3 percent of all outstanding loans, half of what they were just a year ago. If the reserves fall below the 2 percent threshold set by Congress, they could require a taxpayer bailout.

The push to increase affordable housing by distorting the mortgage lending business economics was anything but affordable. It's been an unmitigated disaster.

Acting CFO of Freddie Mac Found Dead of Apparent Suicide

My thoughts and prayers go out to the family of David Kellermann, who took over as CFO of Freddie Mac in September when the federal government moved to take over the entity in the wake of the credit market meltdown. He was found dead today of an apparently suicide:

David Kellermann, the acting chief financial officer of mortgage giant Freddie Mac, was found dead at his home Wednesday morning in what police said was an apparent suicide.

Mary Ann Jennings, director of public information for the Fairfax County, Va., Police Department, said Kellermann was found dead in his Reston, Va., home.

The 41-year-old Kellermann has been Freddie Mac's chief financial officer since September.

Jennings said that a crime scene crew and homicide detectives were investigating the death, but that there didn't appear to be any sign of foul play.

Kellermann's death is the latest blow to Freddie Mac, a government controlled company that owns or guarantees about 13 million home loans. CEO David Moffett resigned last month.

McLean, Va.-based Freddie Mac and sibling company Fannie Mae, which together own or back more than half of the home mortgages in the country, have been hobbled by skyrocketing loan defaults and have received about $60 billion in combined federal aid.

Kellermann was named acting chief financial officer in September 2008, after the resignation of Anthony "Buddy" Piszel, who stepped down after the September 2008 government takeover.

Sadly, I fully expect the conspiracy theories to begin sprouting up in earnest despite any evidence to suggest that it was a homicide or that there were some nefarious actions behind his death.

Obama Administration Targeting Bank Chiefs For Axe?

If you want to know the real reason why so many banks are suddenly so interested in getting out from TARP restrictions, look no further than Obama's advisers and their statements.

They want heads to roll.

Elizabeth Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program, told The Post that letting banking leaders off the hook for the mess their companies are in will plunge the country into a deeper hole.

"The management of the institutions receiving subsidies from the government must be replaced," she said in an interview last week.

Warren picked out the head of Citigroup for special mention, but will recommend all bailout recipients -- which include Goldman Sachs and Bank of America -- get the same clean-out at the top.

She said failure to do so in past financial crises -- particularly in Japan in the 1990s when that country's government handed out cash but left banking leaders in their jobs -- slowed recovery drastically.

"It is crucial for these things to happen," she said.

"Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."

They want private companies to fire their chief executives on the government's say so.

Since when has the government ever had this power to so intrusively and boldly take such power into their hands? And, since we're talking about government demanding heads on platters, where are the heads of Franklin Raines and others at Freddie Mae and Fannie Mac who oversaw the house of cards that came tumbling down on all the banking institutions that were forced to lend to subprime borrowers?

Japan propped up the banks and spent hundreds of billions on government programs that resulted in a stagnant and moribund economy for a decade. Firing private sector business leaders isn't going to achieve a turnaround. It's just a way of passing blame on the situation to a group of business leaders rather than on government intrusion into markets with Congressional and Presidential dictates that pushed banks and lending institutions to lend to those people who had no business being homeowners. When the real estate market crumbled, the subprime borrowers did what they do best - default, and the combination of mark-to-market and government rules meant that banks suddenly found themselves with the capital needed to make further loans. That, in a nutshell, is the American experience.

What Japan did is a lesson in what not to do, and yet the Obama Administration is trying to outspend the Japanese, and they're blaming the financial crisis on the business leaders of banks, some of which didn't want TARP money in the first place but were pressured into doing so by the Administration.

Don't believe me? Just ask bankers:

Some New Jersey bankers are saying they may give back to the government millions of dollars in Troubled Asset Relief Program money.

They say they didn't really need it, and they believe the government went too far when it imposed new restrictions on executive pay and other spending by TARP recipients, changing the rules after deals were done. They also are worried about more rules under consideration by lawmakers in a politically charged anti-banker climate.

"They want to pass legislation where you can't even have a golf outing," said Gerald Lipkin, chief executive officer of Valley National Bancorp, which received $300 million, more than any other New Jersey-based bank.

And please, he insists, don't call it a bailout, noting that Valley and other banks are paying dividends to the U.S. Treasury of about 8 percent a year, pre-tax. Lipkin and other top executives at Valley took big pay cuts in 2008, forgoing year-end bonuses to satisfy federal authorities. "Two-thirds of our compensation is bonuses. Now we can't do that, and that came through retroactively," he said.

Valley is considering joining other banks around the country in buying back the preferred shares it sold to the government to get more money to lend.

Oak Ridge-based Lakeland Bancorp, which received $59 million in early February, also is having second thoughts. Lakeland CEO Thomas Shara said TARP recipients have been unfairly stigmatized by lawmakers and the public to the point where it may be hurting their business. For customers, prospective customers and shareholders, the bank's TARP participation turned out to be "more a negative than a positive," Shara said. Giving the money back "is something we are evaluating," he said.

As I said above, where are the criminal charges and actions against the staff at Freddie Mac and Fannie Mae for their failure to oversee mortgage lending standards, which they purposefully watered down to the point that anyone could receive a mortgage on little more than a person's say so.

Freddie and Fannie executives have gotten a free pass, including from having to give back bonuses. That's despite the fact that these two entities were at the heart of the credit mess and defaults.

Income verification was passe, as was the ability to document the ability to repay. It was free money, and it did wonders to artificially boost the real estate markets to unsustainable levels. When the lending dried up, so too did the real estate market boom, which came to a thudding crash. Without the new borrowers, sellers were left holding the bag and prices began to plummet in many parts of the country.

Now, after nearly two years, prices are starting to align with what they should have been all along, rather than grossly inflated prices that made many parts of the country unaffordable even under government affordable housing lending programs.

Instead of letting the markets sort this out, the Administration is pushing to impose its will on the private sector in ways that would make the Founding Fathers blush at the overt ignorance of Constitutional limits on federal authority.

Fannie Mae and Freddie Mac Doled Out Big Buck Bonuses

Where's the outrage over this? Freddie Mac and Fannie Mae together issued more than $200 million in bonuses, despite both entities being at the center of the real estate market meltdown and subsequent credit market crisis.

Congress and the Administration were more than willing to plunder those who were entitled to executive compensation and retention pay in the form of bonuses for AIG and other TARP recipients, but they specifically excluded Freddie Mac and Fannie Mae, despite the clear problems in management at both entities.

Mortgage finance giants Fannie Mae and Freddie Mac plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs at the government-controlled companies.

The retention awards for more than 7,600 employees were disclosed in a letter from the companies' regulator released Friday by Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. The companies paid out nearly $51 million last year, are scheduled to make $146 million in payments this year and $13 million in 2010.

"It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year," Grassley said in a statement. "It's an insult that the bonuses were made with an infusion of cash from taxpayers."

Fannie and Freddie declined to comment on Friday. Fannie had disclosed that it plans to pay four top executives at least $1 million each in retention payments that run through February. Freddie has yet to report on which executives are in line for the awards.

The two companies, hobbled by skyrocketing loan defaults, were seized by regulators last fall and operate under close federal oversight with new chief executives installed by the government. Since the takeover, Fannie Mae has received $15 billion in federal aid, while Freddie Mac has received nearly $45 billion.

If those entities were treated like others receiving bailouts, those executives would be hit with the confiscatory taxes. However, Freddie Mac and Fannie Mae get favorable treatment from Congress and the Administration. Something stinks rotten.

Pres-Elect Obama's New Chief of Staff Has Freddie Mac Issues

If he had a (R) after his name, the media might have made more of this. But Rahm Emanuel isn't a Republican. He's a Democrat enforcer that President Elect Barack Obama chose to be his Chief of Staff.

Emanuel is a tough guy, but he's got skeletons in his closet that should give people pause as to Obama's choice and judgment.

Emanuel was on the board of Freddie Mac when Freddie Mac was cooking the books. He didn't blow the whistle on the situation or the fact that the entity was about to go broke over the subprime mess, which he and his fellow Democrats chose to ignore for years in the name of affordable housing. As ABC News now reports:

President-elect Barack Obama's newly appointed chief of staff, Rahm Emanuel, served on the board of directors of the federal mortgage firm Freddie Mac at a time when scandal was brewing at the troubled agency and the board failed to spot "red flags," according to government reports reviewed by ABCNews.com.

According to a complaint later filed by the Securities and Exchange Commission, Freddie Mac, known formally as the Federal Home Loan Mortgage Corporation, misreported profits by billions of dollars in order to deceive investors between the years 2000 and 2002.

No one has accused Emanuel of wrongdoing in those complaints, but one really ought to question his judgment and inability to note the serious problems facing Freddie Mac.

Jammie also points out this particular issue with Emanuel's tax situation. Apparently, he doesn't pay any property taxes because he's declared his home the office of a charitable foundation. Nearby homes of similar size pay upwards of $6,000 a year in property taxes. Emanuel pays nothing.

Of course, I've pointed out previously that Emanuel has issues stemming from what he knew about the Tim Mahoney mess in Florida. He was responsible for getting Mahoney elected, and then learned about the affairs, and worked to keep the news from leaking. I'm curious as to why the media isn't digging deeper to find out what Emanuel knew about that situation.

UPDATE:
Hot Air notes the possible civil and criminal liability facing Emanuel if it can be shown he signed off on the bogus numbers generated by Freddie Mac.

This is no small matter. Had this happened when Sarbanes-Oxley was in effect, Emanuel would have had to sign off on those numbers under penalty of perjury. He could be liable for criminal prosecution. As it is, his actions and omissions as a board member may still result in civil and criminal liability, if the SEC discovers that he had a hand in the fraud committed at Freddie Mac, or if Emanuel knew about it and failed to act to stop it.

New York Times Smears McCain Adviser For Toxic Paper Ties

The New York Times claims that John McCain's campaign manager, Rick Davis, has received money from Freddie Mac until last month. Here's the lede:

One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.

The McCain campaign responded quite vigorously, claiming that the Times is nothing more than an Obama shill.

In fact, the allegation is demonstrably false. As has been previously reported, Mr. Davis separated from his consulting firm, Davis Manafort, in 2006. As has been previously reported, Mr. Davis has seen no income from Davis Manafort since 2006. Zero. Mr. Davis has received no salary or compensation since 2006. Mr. Davis has received no profit or partner distributions from that firm on any basis -- weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-annual or annual -- since 2006. Again, zero. Neither has Mr. Davis received any equity in the firm based on profits derived since his financial separation from Davis Manafort in 2006.

Further, and missing from the Times' reporting, Mr. Davis has never -- never -- been a lobbyist for either Fannie Mae or Freddie Mac. Mr. Davis has not served as a registered lobbyist since 2005.

Though these facts are a matter of public record, the New York Times, in what can only be explained as a willful disregard of the truth, failed to research this story or present any semblance of a fairminded treatment of the facts closely at hand. The paper did manage to report one interesting but irrelevant fact: Mr. Davis did participate in a roundtable discussion on the political scene with...Paul Begala.

The Times has repeatedly ignored or minimized the fact that the Obama campaign is thoroughly surrounded itself with those who are involved in the Fannie Mae/Freddie Mac mess, including former Fannie Mae CEO Jim Johnson and has sought advice from former Freddie Mac head Franklin Raines. Both of those men headed the very corporations that are at the epicenter of the Wall Street toxic paper mess.

Obama made Johnson a member of Obama's vice presidential search committee until he was forced to remove him because of the exposure of his ties to Fannie Mae. Yet Obama continues to rely on Johnson.

Obama's campaigns have benefited from his relationship with Fannie Mae and Freddie Mac with more than $100,000 in lobbyist contributions. Then again, nearly everyone in Congress took money from those two organizations. However, only Sen. Chris Dodd (D-CT) and Chair of the Banking Committee took more money from these two comapnies.

Obama also has close relationships with radical community groups like ACORN, which claim to seek affordable housing for people, but who have also lobbied Congress to relax lending rules so as to extend loans to those who simply cannot afford to repay them. Relaxing these lending rules meant that banks had no choice but to lend to those who would never be able to repay, and while everything worked when home prices increased, the whole thing fell like a house of cards when prices dropped. No one could figure out exactly how much was on the books because Fannie and Freddie essentially hid these facts from public view until it was too late.

UPDATE:
Apparently Ben Smith has a problem with reading comprehension because he claims that McCain's campaign doesn't deny parts of the New York Times. How about the basic premise - that Davis was still on the payroll. McCain makes it quite clear that Davis wasn't on the payroll for the time in question, and wonders whether the Times spilled any ink in investigating Obama's clear and omnipresent ties to the banking industry.

Turmoil Roils Wall Street

It's going to be one hell of a week on Wall Street as two bastions of the Street, Merrill Lynch and Lehman Brothers have succumbed to the credit crisis from having so much debt on their hands that they had no way of paying for any of it.

Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

In an effort to calm the markets, Lehman pre-announced third-quarter results on Wednesday. In an affidavit filed with the bankruptcy court, Lehman Chief Financial Officer Ian Lowitt said that action "did little to quell the rumors in the markets and the concerns about the viability of the company." He said the uncertainty made it impossible for Lehman to continue.

Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

Lehman Brothers filed for Chapter 11 bankruptcy protection last night, and Merrill Lynch got bought out by Bank of America for roughly $50 billion. It had been expected that Bank of America would go after Lehman Brothers, but Bank of America wouldn't move on Lehman Brothers without the federal government providing protection.

The markets are going to be hurting badly this week, but this situation has been months in the making.

This situation will ripple through the NY Metro area, where Wall Street executives and workers live and spend their considerable salaries. It also means that the real estate market in the region is going to take a hit as well, as people are not as likely to buy new homes and may consider downsizing their homes even as they are unable to find buyers for their existing homes.

Jim Cramer is arguing that the situation demands that the Federal Reserve cut interest rates. That may increase the amount of liquidity in the markets, but I don't think it addresses the fundamental problems with the credit market - namely that so many banks have exposure to assets that are below water after issuing credit to lenders who had no ability to repay and the paper issued to spread the risk didn't take any of this into consideration. He's not the only one to think that a rate cut is coming, even though the Fed thinks inflation is the bigger concern. Given that energy costs have dropped well off their highs, inflation costs are muted in comparison to the credit crunch.

Extreme Makeover: The Foreclosure Edition

Even as President Bush signs a seriously misguided housing mortgage assistance program that will only serve to exacerbate the housing crisis because costs will be borne by taxpayers rather than the banks and individuals who took risks and lost on investments (the houses they bought and offered financing for), a curious foreclosure has surfaced.

It happens to be a family that was featured on Extreme Makeover: Home Edition. The family had a huge home built for them. In fact, it was the largest home undertaken by Ty Pennington and the gang until that point in the show's history. It was huge.

To go along with that home, which was valued at $450,000, the family got $250,000 for assistance in covering the tax payments and carrying charges (utility expenses, etc.), and the family's children got college funds.

So, what happened? Well, the family apparently attempted to start a construction business and leveraged the entire house - with a $450,000 mortgage that they were unable to repay. Hence, the foreclosure.

Who do they have to blame? Themselves and the bank. The bank should have known better than to allow the family to leverage the entire value of the home and the family should have known better than to put the entirety of their home as collateral on a business enterprise.

Bad business decisions abounded.

That in a nutshell is why the housing meltdown occurred.

Lenders, bullied by Congress into lending to those who were unable to pay their bills, threw caution to the wind in the expectation that the housing markets would continue to appreciate. Speculators saw the money offered up by banks and tried to cash in on the market, thinking that it would never go down.

And Fannie Mae and Freddie Mac were run into the ground because the profits were internalized and the risks were externalized to taxpayers. No one was held accountable, and all now all taxpayers will be on the hook for the bad business decisions.

The new housing law cements those decisions and actually rewards bad behavior. It throws a lifeline to those who risked their money and lost.