Office Of Federal Housing Enterprise Oversight

Book Review: 'Reckless Endangerment'

Every now and then—but hopefully not too often—you read a book that just makes you spitting mad. Not because you disagree with the author's point of view, but because he's completely sold you on his can-you-believe-this premise.

In 300 pages, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times , and Joshua Rosner, a financial service analyst and expert on the housing market, present a powerful indictment of high-profile individuals who wittingly undermine the U.S. and global financial systems in their pursuit of vast riches.

Their book, "Reckless Endangerment," explains the origins of the financial crisis, the political and economic gains of blind commitment to homeownership, and the betrayal of American taxpayers—most notably, those at the bottom-end of the economic ladder.

Not one of the individuals they detail has gone to jail. Nor will they ever likely pay penance. In fact, some still preside over our political and financial systems.

All remain wealthy (extremely wealthy in some cases), if suffering somewhat-damaged reputations. Bank of America ( BAC ), at the time the new owner of Countrywide Financial, covered, for example, most of the SEC's $67 million dollar fine against Angelo Mozilo, accused of insider trading. Mr. Mozilo's net worth totaled more than $500 million.

The authors deliver substantial evidence, much of it gleaned from years of investigative interviews and note-taking, against people such as Jim Johnson, Robert Rubin, Barney Frank, Chris Dodd, Timothy Geithner, and Mr. Mozilo. Their laundry list includes both Democrats and Republicans, and leaders of the biggest financial institutions in the world.

In particular, they assail Fannie Mae ( FNMA.OB ) and Goldman Sachs ( GS ), and the relationship the two institutions formed. Both established and exerted considerable market power that prioritized no one but their management teams and employees. Their pretense of serving customers and doing social good was pure hypocrisy—even criminal, as the authors suggest.

Jim Johnson, who transformed Fannie Mae into a personal ATM, left the GSE (Government Sponsored Enterprise) in 1998, a decade before the crisis. Nevertheless, he did more than anyone to position the organization for scandal and abuse. Shortly after resigning from Fannie Mae, he became a board member of Goldman Sachs and head of the firm's compensation committee, a role he performed through 2010.

Improve Bad Credit Score: Why Conforming Loans Should Matter to You

It is probably a relief to know mortgage loans have to follow rules of compliance in the United States. Both the lender and the borrower can be assured the loans are fair as a result. Created by the United States Congress, the required guidelines are set forth by a group of financial services corporations. Most people refer to these corporations as Government-Sponsored Enterprises, or GSEs. Very little existed by way of guidelines when it came to residential mortgage loans prior to 1970. The United States government authorized Fannie Mae to purchase these types of loans as a lender in 1970. Universal documents pertaining to mortgages were developed in collaboration with Freddie Mac at that time. National standards for what is today known as the conforming loan were also created. This type of loan has much more liquidity than its non-conforming counterpart, since Fannie Mae and Freddie Mac are constantly looking to purchase conforming loans. Fannie Mae and Freddie Mac can buy only those loans that meet the criteria set by the Office of Federal Housing Enterprise Oversight. Such criteria include debt-to-income home buyer ratio limits and documents required before the loans can go through. Based on the October-to-October changes in median home price, the maximum loan amount is also considered a specific factor in that regard. Since Fannie Mae and Freddie Mac can only purchase loans within the criteria set by the Office of Federal Housing Enterprise Oversight, repackage and sell them to the secondary market, this makes demand for non-conforming loans quite drastically less, as well. The 2008 economic stimulus package also incorporated a temporary increase in the conforming loan limits for high-cost regions of the United States. Lenders were still choosing not to honor the bills as late as March 30, 2009, despite having been signed into law by President Bush on February 13, 2008. It is important to be aware of the underlying issues while considering to buy a house, even though it may not be something that directly affects potential home buyers.

Office of Federal Housing Enterprise Oversight

Federal Housing Enterprises, Ofheo Faces Challenges in Implementing a Comprehensive Oversight Program

Transportation, Treasury, the Judiciary, Housing and Urban Development, and Related Agencies appropriations Bill, 2006

Senate reports

United States Code 2006, Supplement 2