Fannie Seeks Upstanding Invisibles for Long-Term Commitment

In the final scene of the 1990 mob masterpiece “Goodfellas,” wise guy Henry Hill recalls his life as he enters federal witness protection.

“It was easy to disappear. My house was in my mother-in-law’s name. My cars were registered to my wife. My Social Security card and driver’s license were phony. I never voted. I never paid taxes. My birth certificate and my arrest sheet – that’s all you’d have to know I was alive.”

If this describes you, government-sponsored mortgage giant Fannie Mae may want to guarantee or securitize a mortgage in your name, one that … ahem … fell off the back of a truck. Last month, under the pretext of helping the underserved, Fannie announced it had tweaked the knobs and dials on its impenetrable underwriting algorithm in order to fit “credit invisibles” for mortgages. You say you’ve never held a credit card, a gasoline card, a Kohl’s card. Fuggetaboutit! You’re golden. Have you become elderly? Has your credit history gone stale? Fannie knows a guy who knows a guy who knows a guy.

In a press release last month, Fannie cited CFPB findings that show “millions of people in the U.S. are credit-invisible, with black and Latino/Hispanic people disproportionately represented.” But Fannie ignores an August 2021 study by the Federal Reserve that found neither minority group is discriminated against in mortgage lending. (The latter study did show Black and Hispanic applicants tended to have disproportionately greater loan debt than white and Asian applicants. If anything, it suggests they are again being targeted for loan products at a greater clip than the public at large.)

By all accounts, Fannie is greenlighting a repeat of what happened during the leadup to the 2007-2008 financial crisis. Can you make fog on a mirror? Bada bing, you’re in! Fannie is once again signaling a willingness to turn a blind eye to so-called affinity schemes. The story of the 91-year-old African-American widow Addie Polk stands as a low water mark in Fannie’s embrace of predatory loans.

In the Ohio widow’s case, personnel from the defunct lender Countrywide infiltrated her African-American church in Akron. Mortgages, refinancings and homeowner lines of credit were taken out in her name on a home she had owned free and clear for years. When the elderly Polk was later evicted, she shot herself. She became the national face of predatory lending as she lay dying of gunshot wounds in an Akron hospital. When her story went global, Fannie quickly announced it would halt its eviction of the dying widow and forgive her debt. Her story was retold in the 2020 docuseries “The Con” by filmmakers Eric Vaughan and Patrick Lovell.

You’ve got to hand it to employees at Countrywide and Fannie Mae. Where most people saw a lovely elderly lady, they saw an opportunity. Countrywide was already in Justice Department crosshairs for targeting Black and Hispanic Americans, along with the elderly. The DOJ levied big fines against its new owner, Bank of America, over 10,000 toxic subprime mortgages Countrywide had issued.

During the aughts, Fannie trafficked in loans so toxic only a solid-waste professional in the North Jersey area could fully appreciate them. Its securitization of the bum mortgage notes would have made any crime family proud: Alt-A loans, loans based on stated-income – so-called “liar loans” – and negatively amortizing loans. In 2008, Fannie was perp-walked with the rest of the working girls into the house of detention, otherwise known as federal conservatorship, where she has remained. Until recently, she was thought to have been a model inmate.

But Fannie has quietly been selling some of the excess risk it’s been taking on. It’s been offering junk-rated synthetic credit swaps, selling these so-called “CRTs” to counterparties in unknown parts of the economy. She and her reprobate brother, Freddie, have created a market for them, but it was never part of their mandate. There are many open questions about these swaps and their counterparties. More than a decade ago, AIG required the third-largest taxpayer bailout of the financial crisis as a result of similar swaps. The fallout threatened a global contagion.

Since Fannie’s big news about embracing the “invisibles,” commissioned salespeople have been eyeing social clubs, church bake sales and bingo halls like it’s the next Lufthansa JFK heist.

Meanwhile, flinching taxpayers are looking over their shoulders, afraid of getting whacked for the second time in less than 20 years.

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Jeremy Bagott

Certified General Real Estate Appraiser at Bender Rosenthal Inc

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

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