Wednesday, September 17, 2008

Dandy Andy Cuomo: Disaster-Maker at HUD

Besides the horrifically irresponsible Queen Nancy (and Barney, too!), there's another actor--Dandy Andy Cuomo, son of Mario the Abortion-Apologist.

Abortions seem to run in the family--Andy sure did one at HUD.

Curiously, he is a Dim appointee!

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

No, Dandy Andy was hardly alone:

...the near-collapse of these dual pillars in recent weeks is rooted in the HUD junkyard, where every Cuomo decision discussed here was later ratified by his Bush successors

...It is also worth remembering that the motive for this bipartisan ownership expansion probably had more to do with the legion of lobbyists working for lenders, brokers, and Wall Street than an effort to walk in MLK's footsteps

...Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income."

... Cuomo wasn't shy about embracing subprime mortgages as a possible consequence of his goals. "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas," his report on the new goals noted.

...Fannie had gone from $1.2 billion in subprime-mortgage and securities purchases in 2000 to $9.2 billion in 2001 and $15 billion in 2002. Freddie's numbers were murkier, but clearly also on the rise. In 2003 alone, the two bought $81 billion in subprime securities—which also count against the goals.

Fannie also developed a "flexible" product line, providing up to 100 percent financing and requiring borrowers to make as little as a $500 contribution, and bought $13.7 billion of those loans in 2003.

After this initial uptick, the two banks purchased $434 billion in securities backed by subprime loans between 2004 and 2006. The Washington Post noted this June that the GSEs' aggressive acquisitions "created a market for more such lending" by others, feeding the fire.

One could surmise that the 2004/6 "market creation" was the same as the CDO frenzy of Bear Stearns and Lehmann (inter alia.)

It gets worse.

The HUD secretary is also required to produce voluminous rules that govern how the GSEs meet those goals, and the 187-page rules Cuomo issued opened the door to abuse.

The rules explicitly rejected the idea of imposing any new reporting requirements on the GSEs. In other words, HUD wanted Fannie and Freddie to buy risky loans, but the department didn't want to hear just how risky they were.

And worse yet:

But Cuomo wasn't only stifling data that HUD could use to keep the GSEs out of trouble. He also went against his own recommendation—in a report issued jointly with the Treasury Department a few months earlier—that called for a prohibition against the GSEs purchasing loans "with high costs and/or predatory features." Instead, Cuomo decided without explanation to adopt rules that prohibited nothing.

Cuomo also adopted Fannie and Freddie's standards of what a bad loan was, almost verbatim. For example, HUD accepted Fannie's many caveats on prepayment penalties—a predatory practice long condemned by housing advocates. The final rules allowed the GSEs to take goal credit on some loans that carried these penalties, even though these sky-high charges often either bound borrowers to bad mortgages or cost them dearly to climb out.

The Bush Boyzzz were no better.

It should come as no surprise, then, that Fannie conceded in 2005 that 10 percent of its loans had such prepayment penalties. HUD's next rulemaking, in 2004, freely acknowledged that "certain practices were not enumerated in the regulations adopted in 2000," including certain kinds of prepayment penalties, and that they "often lock borrowers into disadvantageous loan products." But once again, HUD did nothing about those practices.

Cronyism didn't help. Recall that Dandy Andy was looking at running for AG/NY State.

Just a look at the New Yorkers tied to the GSEs must have impressed Cuomo, who, after all, would soon return to New York politics. Harold Ickes, the former Clinton chief of staff and a Democratic power broker in this state, was on the Freddie board. Tom Downey, the former New York congressman who would later donate $21,894 to Cuomo, was a Fannie lobbyist. And Al D'Amato, the former banking committee chair who'd shepherded Cuomo's appointment through the Republican Senate, was a Fannie consultant

And, of course, there were the usual suspects:

But Cuomo was closer to the GSEs' most formidable opponents—namely, the Mortgage Bankers Association (MBA), regarded as the most influential private real-estate finance lobby in Washington, and the upstart FM Watch, a new coalition of heavyweights from Chase to AIG. Both of these groups wanted Cuomo to put as much affordable-housing pressure on the GSEs as he could, and they said so in their releases and newsletters. They opposed what they called Fannie and Freddie's profit-driven "mission creep," which they saw as a publicly subsidized invasion of their high-end mortgage market. Their goal was the same as Cuomo's: to push Fannie and Freddie deeper into low-end mortgages, consistent with the mission statement in their charters

...Angelo Mozilo, the CEO of Countrywide who's become the face of the subprime scandal, was at one point the MBA's president and a member of its executive committee throughout Cuomo's HUD tenure. He and other MBA leaders became Cuomo donors, with Mozilo donating $1,000 twice—in 2002 and 2006

...FM Watch's lobbyists during the Cuomo years at HUD included Tony Podesta, the brother of Clinton's chief of staff, and the law firm Akin Gump, where Cuomo has so many allies that his campaign committee has collected $67,550 in contributions there since he formed it in early 2001.

And another familiar name:

These groups clearly had Cuomo's ear, but he was also being pushed to commit the GSEs to more affordable and, in some cases, riskier loans by consumer organizations—groups like ACORN

Dandy Andy kinda liked predatory gouging, too:

Cuomo's fellow attorney generals in Illinois, California, and Massachusetts have filed lawsuits against Countrywide and other mortgage companies in the current crisis. And those lawsuits are aimed in part at the sucker punch called "yield-spread premium" [YSP] that was thrown at millions of households who got mortgages from brokers. Brokers have taken over the origination market in recent years by aggressively advertising, and they decide which lenders get the business.

Cuomo hasn't sued anybody over these outrageous payments to brokers—which are based on the "spread" between the high interest rate that brokers persuade unwary borrowers to accept and the par or going rate they would ordinarily have to pay. If Cuomo did sue, it might make for an awkward moment or two in court, since it was Cuomo who issued a rule in 1999 that dozens of federal courts have since found legalized the yield-spread premiums. He was the first HUD secretary to say they were "not illegal per se," nullifying most of the 150 class-action lawsuits against them filed across the country

There are certainly those who believe that YSPs are at the heart of the crisis. Senator Chris Dodd, the chair of the banking committee, is trying to ban them...

In his first year as HUD secretary, when his earliest proposal to reform YSPs attracted a Times story, he said: "Too often consumers think the brokers are working for them. In reality, they are working against them." Cuomo's proposed rules that year did not go so far as to prohibit YSPs...

Of course, lying with the language became the "out."

The MBA, which includes brokers and other industry organizations, got Congressional leaders to oppose it, and Cuomo retreated. A year and a half later, Cuomo adopted a new rule that did the opposite of his first proposal. "The Lending Industry Welcomes Policy Clarification" was the subhead on the MBA's cover story. Cuomo's 1999 rule, issued under pressure from Congress to come up with a policy statement one way or the other because of all the lawsuits, found that YSPs were legal if "reasonably related to the value of the goods" actually furnished or the services "actually performed" by brokers. The Cuomo rule-making also stated that "HUD does not view the name of the payment as the appropriate issue," even though calling something a premium based on a "yield" and a "spread" pretty much destroys any notion that the payment is tied to a good or a service.

The author's take on Dandy Andy's YSP gobbledygook?

The sad fact is that Cuomo's surrender on YSPs can't be excused as an unfortunate consequence of well-motivated policy, as his defenders have argued regarding his FHA and GSE actions. He has no cover for this one; it exposes him as an agent of special interests. And looking at his GSE and FHA policies through the lens of his retreat on these payoffs (which even Glaser, in a marked change from his MBA days, now condemns) suggests a pattern of compromised judgments


NO credit should go to GWB, whose HUD appointees reflected his smarmy silliness about such things as budget discipline, standards, and responsibility. (Little of any, if you need a hint.) Nothing changed--partly due to the Democrat Congress, partly due to the private-interest pirates, and partly due to GWB's flaccidity.

But Dandy Andy has aspirations way beyond NY State. Remember this when he comes a-callin'.

HT: Overlawyered


Larry Denninger said...

Wasn't there some stonewalling in Congress to prevent any investigation, by Dodd and Frank? What's the scoop on that?

Larry Denninger said...

Oh - just read the next post. As that SNL character of Gilda Radner used to say.... "Never mind!"