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U.S. Rep. Maxine Waters, D-Los Angeles, played a forceful role in protecting mortgage giants Fannie Mae and Freddie Mac when regulators repeatedly raised red flags, saying that these two institutions, now disgraced and bailed-out, were in very deep trouble.

Unwitting enablers or co-conspirators? The record is chilling. It shows the feisty Waters and her congressional colleagues ignored repeated warnings that Fannie Mae was a potential train-wreck waiting to happen; that Fannie was loaded down with risky loans, was cooking its books to hide the gaping holes in its portfolio and that the engineers of this impending debacle, in particular Fannie CEO Franklin Raines, were raking in millions of dollars in bonuses based on Fannie's reckless policies.

Fannie and Freddie's overseers in the Office of Federal Housing Enterprise Oversight (OFHEO) regulators ran into a buzzsaw of skepticism and denial when they testified (repeatedly testified) about their troubling findings regarding Fannie and Freddie before a U.S. House of Representatives subcommittee (Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises) on which Waters and U.S. Rep. Barney Frank, D-Massachusetts (photo below, right), sat. Frank now is a leading voice in the bailout debate, Waters to a lesser extent.

Fannie and Freddie, the regulators were told by the testy Democrats, were not in crisis; in fact, the OFHEO folks were told by one Democratic lawmakers that they had wasted the subcommittee's time with their findings, that he was literally "pissed off" by OFHEO's work. Talk about shooting the messenger.

Take a look at this videotape now on YouTube. http://www.youtube.com/watch?v=_MGT_cSi7Rs
WARNING: This video is highly partisan and heavily edited. But it does capture the flavor of the congressmembers reacting to a Bush administration proposal to alter and supposedly improve, the oversight of Fannie Mae and Freddie Mac after an audit discovered some major irregularities.

In 2006 OFHEO produced an exhaustive 390-page examination of Fannie Mae's activities - that goes along way toward explaining that agency's meltdown and its role as an enabler of the housing bubble. http://www.ofheo.gov/media/pdf/FNMSPECIALEXAM.PDF

Here are some excerpts from the transcript of the Sept. 25, 2003 hearing of that subcommittee.

U.S. REP. BARNEY FRANK (D-MASSACHUSETTS):
".... I think it is clear that Fannie Mae and
Freddie Mac are sufficiently secure so they are in no great
danger. And I was glad to have Secretary Snow say when he
testified that this is not something we are doing in response
to a crisis. For once, Congress is getting out ahead of a
problem.....In this case, we are taking some anticipatory steps....

"I don't think we face a crisis; I don't think that we have
an impending disaster. We have a chance to improve regulation
of two entities that I think are on the whole working well.
Fannie Mae and Freddie Mac do very good work, and they are
not endangering the fiscal health of this country."

U.S. REP. GREGORY MEEKS (D-NEW YORK):
"And since I have to go to another hearing, I will try to be just real quick.
As well as the fact that I am just pissed off at OFHEO because if it wasn't for
you I don't think that we would be here in the first place.

"And Freddie Mac, who on its own, you know, came out front
and indicated it is wrong, and now the problem that we have and
that we are faced with is maybe some individuals who wanted to
do away with GSEs in the first place, you have given them an
excuse to try to have this forum so that we can talk about it
and maybe change the direction and the mission of what the GSEs
had, which they have done a tremendous job."

******SCHWADA Note: Meeks' view is that the best defense is a good offense.
But the oversight agency head, Armando Falcon, Jr., fires back:

ARMANDO FALCON, JR., OFHEO DIRECTOR:
"Congressman, OFHEO did not improperly apply
accounting rules; Freddie Mac did. OFHEO did not try to manage
earnings improperly; Freddie Mac did. So this isn't about the
agency's engagement in improper conduct, it is about Freddie
Mac. Let me just correct the record on that."

******SCHWADA Note: And then there's Waters, also defending the GSE's
(Government Sponsored Enterprises, i.e. Fannie and Freddie), opposing any new
regulatory scheme that might interfere with Fannie and Freddie's
missions and - with haunting irony - praising Fannie and Freddie's
"innovative" loan practices - including backing "100 percent loans."

U.S. REP. MAXINE WATERS (D-CALIFORNIA):
"Mr. Chairman, we do not have a crisis at Freddie Mac, and
in particular at Fannie Mae, under the outstanding leadership of
Mr. Frank Raines. Everything in the 1992 act has worked just fine.
In fact, the GSEs have exceeded their housing goals.

"What we need to do today is to focus on the regulator, and
this must be done in a manner so as not to impede their [Fannie and Freddie's]
affordable housing mission, a mission that has seen innovation
flourish from desktop underwriting to 100 percent loans."

this is the url that gets you to the full transcript of Sept. 25, 2003 hearing:
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbn
ame=108_house_hearings&docid=f:92628.wais

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