The Housing Collapse was created by Democrats, Fannie Mae and Freddie Mac.
If you listen to Teapublicans, youd think Democratic Congressman Barney Frank was almost solely responsible for the collapse of the housing market aided by Fannie Mae and Freddie Mac. And theyd have you believe that the collapse is further evidence of an out-of-control federal government that forced banks to loan to the poor then guaranteed loans that could never be repaid.
Yet it was legislation authored and passed by Republicans that led to the collapse.
For example, in 1986, the Reagan administration eliminated tax deductions for credit card interest. Since interest on mortgages was still deductible, that encouraged many Americans to use their homes as credit accounts through home equity loans and refinancing.
The Republican-sponsored Taxpayer Relief Act of 1997 excluded capital gains taxes on home sales encouraging speculation on real estate investments.
The Gramm-Leach-Bliley Act of 1999 deregulated financial institutions permitting banks to risk their customers deposits on risky investments.
Finally, Republican deregulation contributed to mortgage brokers and financial institutions writing questionable sub-prime loans in order to collect the origination fees. The loan originators then packaged the loans into mortgage-backed securities selling them to investors. They were even able to mitigate their risks through credit default swaps that allowed them to pass much of the risk onto other institutions such as AIG.
The result of all this was to encourage Americans to view their homes as investments. Those who did not already own a home felt that they could be shut out of the housing market if they didnt act soon. That encouraged them to overlook the looming balloon payments of Adjustable Rate Mortgages.
By 2006, the US housing market was a house of cards ready to collapse. And it did.
As for Fannie Mae and Freddie Mac, their only apparent role in the collapse was through the Community Reinvestment Act that encouraged banks to reduce discrimination by writing loans to borrowers in low and moderate income areas. But, in 2006, Fannie Mae and Freddie Mac insured only 24 percent of subprime loans and the Community Reinvestment Act affected only one out of the top 25 subprime lenders.
So Teapublican anger about the housing collapse is entirely misdirected. They have almost no one to blame but themselves.