Raines: Don’t Blame Homeowners, Government for Housing Bust

The former chief executive of Fannie Mae, in a rare public appearance Friday, argued that government policies weren’t the main cause of the housing bust, and that the government shouldn’t stop pushing to expand home ownership.

Speaking on a panel at a conference in Washington held by the National Community Reinvestment Coalition, a consumer group, former Fannie CEO Franklin Raines argued that an influx of investors into the housing market — rather than government policy — was the main cause of the market’s collapse.

“This has nothing to do with the average American family wanting to own a home,” Mr. Raines said. “This was rank speculation that was being financed out of Wall Street with no questions asked. That is what caused this crisis. Blaming people — ordinary people — who tried to own a home for this crisis is simply wrong.”

Mr. Raines doesn’t wade into public policy debates much these days, but clearly seemed to relish the opportunity to be back in the conversation about housing policy. Critics argue that the government, working through mortgage giants Fannie Mae and Freddie Mac, fueled the housing bubble through a push to lower lending standards and encourage home ownership in the administrations of President Bill Clinton and George W. Bush.

Some see Mr. Raines, who left Fannie Mae in 2004 in an accounting scandal, as one of the primary villains in this push, and lawmakers are upset that Fannie Mae is still paying his considerable legal bills.

Mr. Raines doesn’t see it that way.

“We now hear that the biggest problem that America faced in the financial crisis was that too many people wanted to own their own home,” he said. “There are many people who say that home ownership is a bad thing economically, that it’s not a good thing for the country, that we’ve put too many resources into housing that people don’t know what they’re doing by investing so much of their consumption in housing…Unless that argument is turned around, Congress is not going to do anything to expand homeownership…We’re losing the argument in Washington.”

Mr. Raines also issued a provocative call for more aggressive efforts to eliminate second mortgages such as home-equity loans, saying that doing so could provide real relief to homeowners who owe more than their properties are worth.

In an interview after the event, Mr. Raines said he’s not focused on what should be a potential solution for Fannie Mae and Freddie Mac, buit said he supports some form of government guarantee on mortgage securities.

Fannie and Freddie, he said, are “not going to be easy to replace, and in the meantime they’re going to need to function well, but I don’t have a magic plan for what should happen with them.”

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