MSNBC's Joe Scarborough falsely suggested that Rep. Barney Frank is only now, in the wake of the mortgage crisis, taking the position that the government should focus on the expansion of affordable rental housing, rather than enacting policies geared toward universal home ownership. In fact, Frank has long advocated that the government focus on expanding affordable rental housing.
On the February 12 edition of MSNBC's Morning Joe, during a discussion of the February 11 testimony to the House Financial Services Committee of the CEOs from the eight financial firms that received money from the Troubled Asset Relief Program (TARP), host Joe Scarborough falsely suggested that Rep. Barney Frank (D-MA) is only now, in the wake of the mortgage crisis, taking the position that the government should focus on the expansion of affordable rental housing, rather than enacting policies geared toward universal home ownership. In fact, Frank has long advocated that the government focus on expanding affordable rental housing.
Responding to CNBC market news analyst David Faber's statement, “Nobody ever sat there and said, 'We don't want people to own homes,' ” Scarborough falsely suggested that Frank has reversed himself on the question of whether the government should make home ownership its central focus, stating that "now Barney Frank is saying some people should just rent." In fact, as Media Matters for America has noted, Frank has long advocated addressing housing shortages by expanding the availability of affordable rental housing:
- During a February 13, 2002, hearing on the Housing and Urban Development budget for fiscal year 2003 (accessed from the Nexis database), Frank stated:
FRANK: [H]ome ownership is a very good thing, and I want us to encourage it. It is a grave error to make that the central focus of housing policy from the standpoint of the government. Of course, we do have a significant aid to home ownership in the tax code. The ownership of housing is very much advantaged by taxes, by the tax code. You get a significant advantage. There was an article by Ken Hardie (ph) in The Washington Post documenting to what extent that exists. And I am in favor of trying to help lower income people get the advantages of home ownership, although as we should note, if you are taking the standard deduction, the tax advantages of home ownership are not nearly so great for you.
But almost by definition, the large majority of poor people are in rental housing, and we willnever alleviate the terrible housing crisis that affects so many people in this country if we do not do a much better job of building decent, affordable rental housing.
FRANK: So home ownership is a useful thing and I want to work with it, but until we begin to take some of the resources of this very wealthy country and dedicate them to adequate production of rental housing as part of an overall mix, we are going to continue to condemn hard- working people to homelessness in some cases, because there are working people who cannot afford anyplace at all, and even more to inadequate housing and to a situation where they have to pay far too much of their income for the housing they have, and have too little left.
In a June 27, 2005, House floor statement, Frank said:
FRANK: Homeownership is an important part of our policy, but it is not the entire housing policy of the Federal Government; nor is it the entire housing need of the Nation. Some people will never own. There will be people who choose not to own; there will be people who for their economic circumstances will not be able to own. And there is no conflict between promoting homeownership and recognizing that decent, affordable rental housing will also be very important indefinitely for tens and tens of millions of Americans.*
- During a July 25, 2006, House floor debate on the Federal Housing Administration's Manufactured Housing Loan Modernization Act of 2006, Frank stated: “I always want to make it clear to people that while homeownership is very important, it should not be considered all of our goal in the housing area. A large number of people, for economic reasons and other reasons, will be renters. It is a good thing if we can help people become homeowners, but we should not neglect the legitimate interests of renters.”
- An April 3, 2007, Reuters article quoted Frank as stating: “This administration is acting as if the only important program to help people with housing issues is to get them into homeownership. I think that overemphasis has contributed to the subprime crisis. People were put into homeownership who just economically should not have been there.”
Further, in a profile of Frank for the January 12 edition of The New Yorker, staff writer Jeffrey Toobin wrote: “According to Frank, at the root of the real-estate crisis was a misguided notion that homeownership should be available to all people -- what President Bush has called 'the ownership society.' ” Toobin quoted Frank saying in a speech that homeownership “is not suitable for everybody.”
Toobin also quoted from an April 2, 2008, Wall Street Journal op-ed by Lawrence B. Lindsey, director of the National Economic Council under former President Bush, in which Lindsey wrote that Frank argued for tighter regulations into the housing market:
Frank went on, “In 2004, it was Bush who started to push Fannie and Freddie into subprime mortgages, because they were boasting about how they were expanding homeownership for low-income people. And I said at the time, 'Hey -- (a) this is going to jeopardize their profitability, but (b) it's going to put people in homes they can't afford, and they're gonna lose them.' ” (In a recent op-ed piece in the Wall Street Journal, Lawrence B. Lindsey, a former economic adviser to President Bush, wrote that Frank “is the only politician I know who has argued that we needed tighter rules that intentionally produce fewer homeowners and more renters.” ) Frank recalled with disdain a Bush Administration proposal to allow time limits on rental vouchers for poor people. “They said, 'Well, don't you agree that we should limit the amount of time people have a voucher?' I said, 'Yes, if you limit the amount of time they can be poor -- ” I'm sorry, you can only be poor for four years." ' "
Indeed, Frank's statement that “it was Bush who started to push Fannie and Freddie into subprime mortgages” is supported by a December 20, 2008, The New York Times article on how “the story of” the mortgage crisis “is partly one of Mr. Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.” The Times reported that Bush “insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending” :
But for much of Mr. Bush's tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put homeownership increasingly out of reach for first-time buyers like Mr. West.
So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.
Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.
And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.
Frank arrived in Congress when the Reagan Administration was withdrawing the federal government from the business of building housing for the poor. At the time, it was clear that the private sector had little incentive to build low-income housing without government assistance in the form of tax breaks or subsidies. The Reagan Administration assisted low-income renters by offering them vouchers to help them pay rent and by providing tax credits to local developers who built low-income housing. In subsequent years, Frank has fought with intermittent success to preserve such programs from major budget cuts.
In 2001, Frank embraced a new approach. That year, Bernie Sanders, then a representative from Vermont, sponsored a bill to create a government trust fund that would be used for building and renovating low-income housing. Sanders's legislation didn't pass, but the idea was later reintroduced, and Frank backed a proposal for funding the trust with a portion of the annual revenue of Fannie Mae and Freddie Mac-the Federal National Mortgage Association and the Federal Home Mortgage Corporation, the two giant, government-backed mortgage companies. The funding for the trust would be automatic-not subject to annual congressional approval. “I realized, because housing has been a backwater, getting appropriations for housing is going to be tough,” Frank told me. “First of all, if you want to build housing, it can't be year by year. You know, it's construction. But, two, I'm finding money outside the appropriations process, money from Fannie Mae and Freddie Mac. So I can do a lot of units without directly competing for the appropriations.”
The idea was based on a variety of similar programs at the state and local levels. In the past few decades, governments across the country have set up nearly six hundred trust funds to build low-income housing, typically by collecting small taxes or fees from real-estate transactions. “There was positive buzz for what was happening with state and local trust funds, but the amounts were really a drop in the bucket,” Barbara Sard, the director of housing policy at the left-leaning Center on Budget and Policy Priorities, said. “But the dream for making a real difference in low-income rental housing has been to do it at the federal level, and that's what Barney has been trying to do.”
Scarborough also repeated the myth that Freddie Mac and Fannie Mae caused the banking crisis, asserting that the committee was “warned in 2002 and 2003 about what they were doing with Fannie Mae and Freddie Mac was going to cause a subprime crisis that would cripple our economy and possibly create an international crisis.” He later said to Faber, “Could you connect the dots between Fannie and Freddie and the rest of the industry? Because we always hear how Fannie and Freddie started it. But somehow, that infected the rest of the industry.” In fact, as economist Dean Baker noted: “Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were trailing the irrational exuberance of the private sector. They lost market share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded.”
Indeed, in a 2006 Securities and Exchange Commission filing (available here) covering its activities in 2004, Fannie Mae stated: “We did not participate in large amounts of these non-traditional mortgages in 2004 and 2005.” In the report, Fannie Mae also noted the growth of subprime lending and reported, “These trends and our decision not to participate in large amounts of these non-traditional mortgages contributed to a significant loss in our share of new single-family mortgage-related securities issuances to private-label issuers during this period.”
Further, contrary to Scarborough's suggestion, Frank did work to strengthen oversight of Fannie and Freddie, as Media Matters for America has documented:
In 2005, Frank, then the ranking Democrat on the House Financial Services Committee, worked with committee chairman Rep. Michael Oxley (R-OH) on the Federal Housing Finance Reform Act of 2005, which would have established the Federal Housing Finance Agency (FHFA) to replace the Office of Federal Housing Enterprise Oversight (OFHEO) as overseer of the activities of Fannie Mae and Freddie Mac. After voting for the bill in committee, Frank voted against final passage of the bill on the House floor, stating that he was doing so because an amendment to the bill on the House floor imposed restrictions on the kinds of nonprofit organizations that could receive funding under the bill.
In early 2007, as chairman of the House Financial Services Committee, Frank sponsored H.R. 1427, a bill to create the FHFA, granting that agency “general supervisory and regulatory authority over” Fannie Mae and Freddie Mac, and directing it to reform the companies' business practices and regulate their exposure to credit and market risk. Among other things, Frank's legislation, titled the Federal Housing Finance Reform Act of 2007, directed the FHFA director to “ensure” that Fannie Mae and Freddie Mac “operate in a safe and sound manner, including maintenance of adequate capital and internal controls” and to establish standards for “management of credit and counterparty risk” and “management of market risk.” The FHFA was eventually created after Congress incorporated provisions that House Speaker Nancy Pelosi (D-CA) said were "similar" to those of H.R. 1427 into the Housing and Economic Recovery Act of 2008, which the president signed into law on July 30, 2008.
From the February 12 edition of MSNBC's Morning Joe:
REP. MICHAEL CAPAUNO (D-MA) [video clip]: Basically, you come to us today on your bicycles after buying Girl Scout cookies and helping out Mother Teresa, telling us: “We're sorry, we didn't mean it, we won't do it again. Trust us.” Well, I have some people in my constituency that actually robbed some of your banks, and they say the same thing. They're sorry, they didn't mean it, they won't do it again -- just let them out. Do you understand that this is a little difficult for most of my constituents to take?
MIKA BRZEZINSKI (co-host): OK.
SCARBOROUGH: You know what I think might be also difficult for his constituents to figure out?
BRZEZINSKI: What's that?
SCARBOROUGH: He and Barney Frank and Maxine Waters said --
SCARBOROUGH: -- when they were warned in 2002 --
SCARBOROUGH: -- and 2003 --
SCARBOROUGH: -- about what they were doing with Fannie Mae and Freddie Mac was going to cause a subprime crisis that would cripple our economy and possibly create an international crisis.
BRZEZINSKI: I --
SCARBOROUGH: I wonder what his constituents would learn if they Googled his name and Fannie Mae in 2002 hearings. That would be fascinating. Because I know Maxine Waters, who was also screaming yesterday, said that Fannie Mae and Freddie Mac, when they were trying to reform it, quote, “If it ain't broke, don't fix it.”
SCARBOROUGH: My, my, my.
BRZEZINSKI: Well, I just think it's interesting how it's politically correct and maybe even cool now to be shocked and horrified at all the arrogance that we're seeing, but where was that a few years ago?
SCAROBOROUGH: And the bank crisis that these --
SCARBOROUGH: -- people caused themselves.
SCARBOROUGH: Along with greedy bankers.
SCARBOROUGH: Well. Everybody went to the money party, and, again, these very people who were screaming now were the very ones that were screaming when there were those trying to stop this crisis five years ago.
BRZEZINSKI: Yes. All right. Now to more on how our money's being spent at home.
SCARBOROUGH: Could you connect the dots between Fannie and Freddie and the rest of the industry? Because we always hear how Fannie and Freddie started it. But somehow, that infected the rest of the industry. And by the end, I guess Fannie and Freddie were carrying what -- 50, 60 percent of the mortgages in America?
FABER: Well, Fannie -- I mean, it's interesting, because there's a story that many believe that Fannie and Freddie were responsible for this crisis. But in our story, it actually is Fannie and Freddie's absence that led to it to a certain extent.
FABER: Nobody ever sat there and said, “We don't want people to own homes.”
SCARBOROUGH: Well, exactly.
FABER: But we get to a certain point in this country -- 60, 65 percent, and everything after that? These people -- I mean, at the end of the day, we have many people saying this. And [unintelligible], they shouldn't own homes. Then you're dealing with people ultimately --
SCARBOROUGH: And now Barney Frank is saying --
BRZEZINSKI: Who cannot pay it.
SCARBOROUGH: -- some people should just rent.
BRZEZINSKI: Yeah. That's right.
SCARBOROUGH: Thanks for telling us now.
MARIA BARTIROMO (anchor of CNBC's Closing Bell): But, you know, the tape is there of Barney Frank just saying, “Look, expand home ownership, the American dream.” You know, and they really didn't understand how it was being done. They weren't, you know, delineating subprime versus, you know, prime. So, I mean, they were on the record saying we need to expand it. Congress is totally at fault.
SCARBOROUGH: And Barney actually said -- and we know and like Barney. But Barney, when -- again, when the White House, the Bush White House, came to him worried about the coming subprime crisis, Barney said when it comes to homeownership, I like to roll the dice.
SCARBOROUGH: So let's keep rolling the dice.