Creative Investment Participates in Obama Administration Conference on Housing Finance

Aug. 19, 2010 - PRLog -- On August 17th, Creative Investment participated in the Conference on the Future of Housing Finance. The event provided a forum for public input as the Administration continues its work developing a comprehensive housing finance reform proposal for delivery to Congress by January 2011.

Sponsored by the Department of the Treasury and the Department of Housing and Urban Development, the "conference (was) an opportunity..to broaden our perspectives on a number of key issues in a transparent way to make certain that all of the best ideas are on the table," according to Jeffrey A. Goldstein, Under Secretary of the Treasury for Domestic Finance.

In our comments at Breakout Session Two: Delivering Access and Affordability, we suggested the Administration define Housing Finance Access as: "the ability to engage in a statistically fair and racially neutral home mortgage financing process." This definition more pointedly defines Freddie Mac and Fannie Mae's new mission as enhancing statistical fairness and racial neutrality in the housing finance market.

Other suggestions we made at the Conference included merging Freddie Mac into Fannie Mae, and then merging the resulting entity into GNMA, as we said on July 14, 2008. (See: http://twisri.blogspot.com/2008/07/freddie-and-fannie-wha... )

Other participants included Wells Fargo Bank. As we noted at the Conference, "(Wells Fargo)..set up a special sales office to steer risky subprime loans to residents in Prince George's County, Baltimore city and other predominantly black communities..Wells Fargo Bank employees allege in a lawsuit. According to the sworn statements by two former loan officers filed June 1 in U.S. District Court of Maryland as part of a lawsuit being pursued by the City of Baltimore against Wells Fargo alleging discriminatory and predatory lending, bank employees targeted black neighborhoods and churches for the escalating-interest mortgages, which some in the office called 'ghetto loans.' This problem was not limited to Maryland: In August, 2009, the State of Illinois filed a lawsuit against Wells Fargo & Co. accusing it of discriminating against black and Latino homeowners by employing racially biased lending practices.

Our comments follow a series of suggestions and warnings we have issued over the years:

On May 6, 1996, we suggested, in a Washington Post article titled This Foundation Director Says Charity Begins at Homes, that the Fannie Mae Foundation be directed to help with specific social issues, like "issuing bonds to finance the renovation of D.C. public school buildings.." We continue to believe the mission of the GSE's should be revised.

On May 30, 1996, we suggested, in a Washington Post article titled "CBO Faults Subsidies for 2 Finance Firms," that "their (the GSE's) primary mission has been completed and completed successfully. Now it's time to look for a different mission, which could be mortgage money for lower-income parts of the District and housing the homeless."

(See: https://www.washingtonpost.com/archive/business/1996/05/3... )

In September, 1998, we opposed the application, approved by the Federal Reserve Board on September 23, 1998, by Travelers Group Inc., New York, New York, to become a bank holding company. In an October 1998, in a petition to the United States Court of Appeals (Case Number 98-1459) concerning the merger, we cited evidence that growing financial market malfeasance greatly exacerbated risks in financial markets, reducing the safety and soundness of large financial institutions.

On June 15, 2000, we testified before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSE's) of the US Congress. I suggested that the GSE's (Fannie Mae and Freddie Mac) be subject to a through "Social Audit." A Social Audit is an examination of the performance of an enterprise relative to certain social objectives. It also includes a review of ethical practices at the firm. Had they been subject to this audit, certain flaws in their operation, including ethical shortcomings, may have been revealed earlier and in a better market in which to make corrections.

On December 22, 2003, we warned regulators that statistical models created by the firm using the Fully Adjusted Return (TM) Methodology signaled the probability of system-wide economic and market failure.

On February 6, 2006, we again warned regulators that statistical models created by the firm using the Fully Adjusted Return (TM) Methodology confirmed that system-wide economic and market failure was a growing possibility. We stated that: "Without meaningful reform there is a small, but significant and growing, risk that our economic system will simply cease functioning."

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Creative Investment Research is an investment research and management company. We research and create socially responsible investments and provide investment advisory services. The company was founded in 1989.