Creator of Freddie Mac’s Home Possible goes to FHA

posted at 10:01 am on March 24, 2009 by Ed Morrissey

Yesterday, the Obama administration announced the appointment of David Stevens to run the Federal Housing Administration (FHA).  The appointment got little attention from the media, but his Senate confirmation hearing might prove more interesting.  Stevens will have to explain his work for Freddie Mac in the years when the mortgage giant fueled a lending frenzy, mostly through Stevens’ own work on a program called Home Possible.

First, the announcement:

David Stevens, president and chief operating officer of real estate brokerage Long & Foster Cos., is President Barack Obama’s choice to head the Federal Housing Administration, according to people familiar with the selection.

Stevens, a former Freddie Mac mortgage executive, would replace Federal Housing Commissioner Brian D. Montgomery, who was appointed by President George W. Bush. The people familiar with Stevens’s selection declined to comment because the Obama administration has yet to make an announcement.

The FHA, a mortgage-insurance division of the U.S. Housing and Urban Development Department created in 1934, is regaining a larger role in the housing market as private insurers and lenders scale back, raise fees and tighten eligibility criteria. The agency said in a February report that applications tripled to 2.3 million in 2008, from 2007. FHA-insured loans represented 31 percent of new mortgages in the fourth quarter, the highest on record, according to newsletter Inside Mortgage Finance.

Stevens’ experience at Freddie Mac should prove instructive.  The Home Possible program that Stevens launched practically gives a blueprint for the housing-bubble collapse and the government’s role in it:

“We created Home Possible Mortgages so more lenders can say ‘Yes’ to more borrowers,” said David Stevens, senior vice president of single family sourcing at Freddie Mac. “Home Possible is what our lenders tell us they need to compete in today’s market: a flexible, easy-to-use mortgage uniting Loan Prospector’s ease and efficiency with exceptionally low-downpayments and flexible credit. Perhaps no other mortgage product launched in recent memory will enable our lenders to reach and help as many additional borrowers as Home Possible.”

The new Home Possible Mortgage combines borrower education and early delinquency counseling, zero and three percent downpayment mortgage products and flexible credit requirements so low-and moderate-income borrowers anywhere in the country can get an affordable, low-cost conforming conventional mortgage for a single family property with as little as $500 of the downpayment or closing costs coming from their own funds. …

Home Possible and Home Possible Neighborhood Solution Mortgages are available through Freddie Mac’s national network of more than 2,000 lenders and 10,000 mortgage brokers using Loan Prospector®, Freddie Mac’s automated underwriting service, such as ABN Amro, U.S. Bank and National City Bank. …

Both Home Possible and Home Possible Neighborhood Solution Mortgages are available as 15-, 20- and 30-year fixed rate mortgages or as 7/1 or 10/1 adjustable rate mortgages for one-unit properties.

No-down mortgages and “flexible credit” helped create the spike in demand that drove the home-construction business over a cliff and hyperinflated housing values.  The people who participated in these terms are the borrowers now most at risk for foreclosure because of unrealistic ARMs and dashed hopes of refinancing leveraged on non-existent equity growth.  Home Possible and similar offerings from Fannie Mae allowed lenders to sell bad paper back to Freddie and Fannie with no risk to themselves, while Fannie and Freddie instead shuffled the risk to investors in its mortgage-backed securities.

Now Barack Obama wants David Stevens to do to FHA what he did with Freddie Mac.  Instead of screeching about AIG bonuses, we should make sure that the people who blew up the economy in the first place do not return to positions where they can do it again. (h/t: HA reader Morgen)


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Comments

Did Stevens date Barney Frank also?? This can’t be happening.. Can It??

Dire Straits on March 24, 2009 at 10:06 AM

Great,so how about starting the Investigation into
FM/FM,

and see how far down the rabbits hole it goes!

canopfor on March 24, 2009 at 10:06 AM

When exactly are we going to stop putting the fox in charge of guarding the chicken coop?

TASS71 on March 24, 2009 at 10:08 AM

oh great! He’s letting the wolves back into the hen house.

becki51758 on March 24, 2009 at 10:08 AM

OMG!! Does it never end.

jeanie on March 24, 2009 at 10:08 AM

Good god. I keep thinking if I just keep my money in the market, no matter how bad it gets, it can only really get better in the end.

I’m beginning to think I might be flawed in my thinking. The end seems very, very near.

amkun on March 24, 2009 at 10:08 AM

Stevens will have to explain his work for Freddie Mac in the years when the mortgage giant fueled a lending frenzy, mostly through Stevens’ own work on a program called Home Possible.

Will he really have to explain anything? Who is going to ask him?

The whole of Congress seems intent on not educating the public on what caused the financial tsunami.

Most senators want to play nice with Obama nominees, even the really bad ones.

myrenovations on March 24, 2009 at 10:09 AM

“So your background check shows that you’re an affirmed pedophile? We realy don’t see how that will keep you from working here at Wee-Care Daycare Center.”

To paraphrase Yosemite Sam: Liberals is soooooo stupid.

AubieJon on March 24, 2009 at 10:09 AM

TASS71 on March 24, 2009 at 10:08 AM

haha Fox, wolves…they are all the same. :)

becki51758 on March 24, 2009 at 10:10 AM

Did Stevens date Barney Frank also??

Dire Straights on Mar 24,2009 at 10:06AM.

Dire Straights: I’m not sure,maybe he was a tenant,in

Barney’s basement at some point!hehe.

canopfor on March 24, 2009 at 10:10 AM

Of course anyone who questions that he is not the most qualified person for the job is an instant homophobe.

Oh well…..back to the gun store

lm10001 on March 24, 2009 at 10:13 AM

Maybe Ogabe can pardon Charles Manson and appoint him head of the FBI.

Bishop on March 24, 2009 at 10:14 AM

Action Alert! We’ve to stop this nomination anyhow. Let’s first bring it to attention of everyone, talk radio, WSJ etc. We’ve to stop this madness.

promachus on March 24, 2009 at 10:15 AM

Wish I had a senator to write about this. Writing Arlen Sphincter is a waste of paper.

petefrt on March 24, 2009 at 10:16 AM

2 impt things: we need to stop this nomination.

but most imptly, we need to question this guy so that Barney Frank is implicated.

kelley in virginia on March 24, 2009 at 10:16 AM

Greenspan on ARM’s 2004

Calculations by market analysts of the “option-adjusted spread” on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners’ annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.

gatorboy on March 24, 2009 at 10:16 AM

Bishop on March 24, 2009 at 10:14 AM

Naw. I heard Charlie’s going to head a Foundation for Troubled Youths.

How many more useless individuals can Mr. President have in his Administration?

kingsjester on March 24, 2009 at 10:16 AM

and yeah, writing Sens. Webb & Mark Warner is a big waste of time, too.

kelley in virginia on March 24, 2009 at 10:17 AM

If you expected something different from Obambi you probably voted for him. Hang on to your… well, there won’t be much to hang on to but, he has only just begun.

sheriff246 on March 24, 2009 at 10:17 AM

How many more useless individuals can Mr. President have in his Administration?
kingsjester on March 24, 2009 at 10:16 AM

How many spots does he have open and waiting to be filled?

William Ayers for Supreme Court.

Bishop on March 24, 2009 at 10:18 AM

but write your representatives anyway. they need to know that people are “dissatisfied” (a mild word, huh?) with them.

kelley in virginia on March 24, 2009 at 10:18 AM

Why would anyone presume that this congress will have the same adversarial relationship with the president as it did with Bush?

This congress is sympathetic to Obama’s plans and goals, not opposed to them.

Skandia Recluse on March 24, 2009 at 10:18 AM

petefrt on March 24, 2009 at 10:16 AM

I know what you mean. sigh

becki51758 on March 24, 2009 at 10:19 AM

Home Possible is what our lenders tell us they need to compete in today’s market…

Home Possible is what lenders tell us they need to make a lot of money in today’s market without having to be burden by the risk of making mortgages to people cannot afford them. Lender’s told us, off the record, that this program allows the lender to get all the profits and the taxpayers absorb all the losses.

“I created Home Possible Mortgages so I could have a really big home when I return the private sector and exploit this program,” said David Stevens.

WashJeff on March 24, 2009 at 10:20 AM

Obama will continue, full speed ahead, until the Dems lose the House. Hang on tight, folks.

OhioCoastie on March 24, 2009 at 10:20 AM

Where does he keep digging these people up from?

ctmom on March 24, 2009 at 10:20 AM

Methinks it’s time to add pitchforks to the Tea Parties.

either orr on March 24, 2009 at 10:21 AM

kingsjester on March 24, 2009 at 10:16 AM

Charlie is going to head up the Obama Youth Corps. We all remember how well he gets the kids to work together and do as they are told.

thomasaur on March 24, 2009 at 10:21 AM

Did Obama invent the concept of CHAOS!!!?

Cause he is the High Unholy Master of it!

katy on March 24, 2009 at 10:22 AM

Dire Straights: I’m not sure,maybe he was a tenant,in

Barney’s basement at some point!hehe.

canopfor on March 24, 2009 at 10:10 AM

Probaly has number in Barney’s black book or at least was/is a chat room buddy on Craig’s List.

Dire Straits on March 24, 2009 at 10:22 AM

Write my Representative? It’s Paul Hodes, a pretty wild eyed obama supporter. Waste of time.

jeanie on March 24, 2009 at 10:22 AM

Dire Straights: I’m not sure,maybe he was a tenant,in

Barney’s basement at some point!hehe.

That’s a little graphic for the AM dontcha think…I mean how many people have been in Barney’s basement?

winston on March 24, 2009 at 10:22 AM

thomasaur on March 24, 2009 at 10:21 AM

Yeah. And Geraldo could go interview him again. They might even give Geraldo a black beret all his own.

kingsjester on March 24, 2009 at 10:22 AM

This doesn’t surprise me. Obama has never led one iota of blame for the meltdown at the feet of FM & FM, or on government intervention in pushing mortgages on people who can’t afford them. This is entirely in keeping with his ACORN-style agenda. And now that he’s asking for the authority to take over a broader range of financial institutions, he’s poising himself to have the top %5 of American income earners buy houses for his political base. After all, in his view the Warren Supreme court did not go far enough; equalizing incomes is what the civil rights movement failed to accomplish.

ProfessorMiao on March 24, 2009 at 10:24 AM

No shirt, no shoes, no collateral, no credit…
No freakin’ problem!

whitetop on March 24, 2009 at 10:25 AM

I bet, Ted Stevens lived in Obama’s neighbourhood!

canopfor on March 24, 2009 at 10:27 AM

Ed, did Home Possible also take advantage of the “stated income” scam?

Mr_Magoo on March 24, 2009 at 10:32 AM

Wish I had a senator to write about this. Writing Arlen Sphincter is a waste of paper.

petefrt on March 24, 2009 at 10:16 AM

Write my Representative? It’s Paul Hodes, a pretty wild eyed obama supporter. Waste of time.

jeanie on March 24, 2009 at 10:22 AM

Sure, make it easier for them to walk all over their constituents. Smooth sailing.

misslizzi on March 24, 2009 at 10:32 AM

No solutions. They won’t admit what caused the problems, so they will be repeated, and they will be worse.

The masses simply believe all of the financial problems were created by rich bankers and CEOs.

Might as well just resurrect the program that got us into this mess, expand it and name it Hope Possible.

reaganaut on March 24, 2009 at 10:33 AM

What could go wrong?
/sarc

CP on March 24, 2009 at 10:33 AM

Ahah! The architect of the Obama Depression!

unclesmrgol on March 24, 2009 at 10:36 AM

That’s a little graphic for the AM dontcha think…I mean how many people have been in Barney’s basement?

winston on March 24, 2009 at 10:22 AM

Ouch. Not the image I want in the a.m. Or p.m. either.

BTW, has Dear Leader gotten Timmy-boy any help at the Treasury, or are those 17 spots still without nominees? (I’m not even asking about confirmations, just nominations).

rbj on March 24, 2009 at 10:36 AM

The FHA, a mortgage-insurance division of the U.S. Housing and Urban Development Department created in 1934, is regaining a larger role in the housing market as private insurers and lenders scale back, raise fees and tighten eligibility criteria

Private insurers will continue to scale back to keep their books in balance and promote responsible lending practices, while the CRA goes Federal. From a socialist point of view, this makes perfect sense. How’s that transfer of wealth program working Mr. President? Teleprompter got your tongue?

Rovin on March 24, 2009 at 10:39 AM

Over at The Campaign Spot, there is a link to three new Treasury nominees.

myrenovations on March 24, 2009 at 10:40 AM

The new Home Possible Mortgage combines borrower education and early delinquency counseling, zero and three percent downpayment mortgage products and flexible credit requirements so low-and moderate-income borrowers anywhere in the country can get an affordable, low-cost conforming conventional mortgage for a single family property with as little as $500 of the downpayment or closing costs coming from their own funds. …

“borrower education” and “early delinquency counseling” = ACORN bullsh*t boondoggles.

“zero and three percent downpayment mortgage products” = recipe for disaster.

“flexible credit requirements” = flexible in the sense that taxpayers will ultimately be asked to bend over and grab their ankles.

“low-and-moderate-income borrowers” = people who should be renters.

“as little as $500 of the downpayment or closing costs coming from their own funds” = people who actually pay income taxes will pick up the tab to put you in a home you clearly won’t be able to afford.

BuckeyeSam on March 24, 2009 at 10:41 AM

“We created Home Possible Mortgages so more lenders can say ‘Yes’ to more borrowers,” said David Stevens, senior vice president of single family sourcing at Freddie Mac.

What a putz. Again showing government is the root of the problem.
This is a great chance for the republicans to ask:

“Instead of creating an environment where more lenders were saying “YES” and putting us on a road to disaster – We say “NO” to you Mr. Stevens – we don’t need anymore wreckless, drunken spenders in the government, especially in this administration where the word NO means nothing.”

izoneguy on March 24, 2009 at 10:42 AM

As long as we’re pointing fingers at economy-wreakers, can we also have some “love” for the Financial Accounting Standards Board? It’s their ruling that created “mark to market” pricing that forced these toxic assets to be valued at zero, even though most of these “toxic assets” are still revenue producing packages (and therefore, worth much more than zero).

But if no one is willing to buy these assets, the accounting rules force their asset values to zero. And because the accounting rules force these asset values to zero, many banks became insolvent overnight, in part because of bad lending practices, but even more because of an accounting rule set by a bunch of academics ruling on “theoretical values” of these assets.

And without mark-to-market, we wouldn’t have massive bailouts to buy up “worthless” assets that are in fact not worthless. We wouldn’t have banks going out of business. And most of all, we wouldn’t have the frozen credit market that stubbornly refuses to un-freeze, even with the Feds dumping a trillion dollars into the market.

Oh, yes. When did mark-to-market go into effect? 2007, right before everything started sliding into the pits of hell.

Mark-to-market is one of the prime causes of our financial panic, and yet this issue gets almost no visibility outside of a few economist blogs.

Seriously, Ed and AP, if you want a target for populist outrage, mark-to-market needs some of that outrage. It needs to end. And it’s a simple accounting rules change; it doesn’t need Congressional or Treasury or Fed approval.

NeighborhoodCatLady on March 24, 2009 at 10:44 AM

O/T,Meanwhile,over at Ace’s site,

the ABL,747 System might get cancelled!!!!

canopfor on March 24, 2009 at 10:45 AM

(I am compelled to violate my Lenten commitment against commenting at HotAir for this post. This is personal.)

The Freddie Home Possible loan mirrors the Fannie My Community loan, both of which involved the single most astonishing underwriting accommodation that any mortgage lender I know has ever seen.

This 100% loan – no money down, and closing costs can be paid by seller, making it literally a “you don’t need a penny” loan – utilized approvals by the Fannie Mae “DU” and Freddie Mac “LP” software programs, meaning that there were no hard, objective standards that had to be met in order to get an approval. If the DU findings came back with an “Approve/Eligible” finding, you had a deal.

The unique twist: we were getting approvals on loan applications with Debt-to-Income ratios as high as 64.99%. Let that settle for a moment. If I could document income of, say, $4000 gross/month, or $48,000 a year, I could get loan approvals with debts of $2,599.60/month, including the mortgage.

Consider what’s not included in a debt ratio: taxes, food, insurance, clothing, childcare, utilities, gas or commuting expense.

So, if you make $4,000 a month, you only bring home about $3,200. If your mortgage and other credit (car loan, student loans, credit card minimum payments) total $2,599.60, then you have $600 a month to pay for the rest of that stuff.

Anyone still wonder why the housing market got priced up to hyper-inflation levels, or why it collapsed like a hot air balloon on fire? Yeah, I made those loans, why wouldn’t I? But without exception, there was income in those households that was not disclosed – a wife or girlfriend who made $30 or $50k a year but couldn’t sign because of a credit problem, or someone working for cash, etc.

But I guarantee you that thousands of lenders around the country had figured out the Magic Loan and were exploiting the hell out of it. And the creator of this suicidal loan product is going to FHA? Obama is an idiot and a liar – he doesn’t want to fix anything.

Jaibones on March 24, 2009 at 10:52 AM

Hahahahaha…But seriously, ummmm…hahahahahah.

Metalhead on March 24, 2009 at 10:55 AM

“Now Barack Obama wants David Stevens to do to FHA what he did with Freddie Mac.”

Pelosi and Reid should have no problem with that.

Exit question: What kind of “bonus” did Stevens get while at Freddie Mac?

GarandFan on March 24, 2009 at 10:59 AM

Meanwhile, Obama’s got his henchmen back up on capital hill to expand government siezing powers of the private companys we’re discussing here:

“The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

“We’re very late in doing this, but we’ve got to move quickly to try and do this because, again, it’s a necessary thing for any government to have a broader range of tools for dealing with these kinds of things, so you can protect the economy from the kind of risks posed by institutions that get to the point where they’re systemic,” Geithner said last night at a forum held by the Wall Street Journal.

“IF YOU TOTTER, WE WILL BURY/OWN YOU”

Khrushchev, you magnificent bastard!

What’s next? Will my rehabilitated, bright yellow ’82 toyota P.U., (that gets over 30mpg), be siezed by a government car czar because it’s not green enough?

Rovin on March 24, 2009 at 11:01 AM

Jaibones is 100% correct; and it was Freddie Mac more than Fannie Mae that jumped into subprime loan purchases and paved the way for the massive explosion in subprime and alt-A lending.

I actually served on a board with Dave Stevens and he is a great guy. I would love to see FHA run by an actual mortgage banker or MI guy for once. But this appointment is just wrong. Jim Bunning will rip Stevens a new one in a confirmation hearing.

rockmom on March 24, 2009 at 11:43 AM

Wish I had a senator to write about this. Writing Arlen Sphincter is a waste of paper.

petefrt on March 24, 2009 at 10:16 AM

Write to Bob Casey, he is on the Banking Committee. He hates mortgage brokers and Stevens also ran the wholesale division for Wells Fargo.

rockmom on March 24, 2009 at 11:46 AM

Obama will continue, full speed ahead, until the Dems lose the House. Hang on tight, folks.

OhioCoastie on March 24, 2009

Hanging on with white-knuckle panic.
BTW, you anywhere near Cedar Point – my #5 favorite place on the planet.

SKYFOX on March 24, 2009 at 11:49 AM

Over at The Campaign Spot, there is a link to three new Treasury nominees.

myrenovations on March 24, 2009 at 10:40 AM

One of them is nominated for Deputy Secretary (a Clinton retread), but the other two are minor jobs. Still no nominee for Assistant Secretary for Financial Institutions.

rockmom on March 24, 2009 at 11:49 AM

Everyone should email their senators about this…I just emailed John Kyl..next is McCain. Email the Hotair link as well.

Wileygrl3 on March 24, 2009 at 11:56 AM

You might want to add — Home Possible was an outgrowth of the enabling legislation ADDI 2003. ADDI == American Dream Down payment Initiative — Catchy name huh.

tarpon on March 24, 2009 at 12:01 PM

but most imptly, we need to question this guy so that Barney Frank is implicated.

kelley in virginia on March 24, 2009 at 10:16 AM

It drives me crazy that Frank wags his finger at AIG while continuing to dodge the sht he helped to protect at Fannie and Freddie…good way to distract the public from his role in it. Although the MSM doesnt try very hard to expose him.

Wileygrl3 on March 24, 2009 at 12:06 PM

It’s Groundhog Day. Again.

It’s Groundhog Day. Again.

hillbillyjim on March 24, 2009 at 12:08 PM

jailbones, you oversimply the Automated Undewriting process. An Approve Eligible finding in excess of program guidelines indicates compensating factors that make a higher than normal DTI acceptable. Things like lots of cash on hand, a history of making a similar housing payment or long term employment stability are valuable indicators of an applicants ability to make their mortgage payment.

The real problem with this loan product, like all high LTV loan products was LOAN FRAUD. The bankers and brokers who submitted bogus loan files created the mortgage mess.

Your blaming the handgun for the murder, not the person who pulled the trigger.

DrW on March 24, 2009 at 12:09 PM

It takes an incompetent to reward an incompetent.

DL13 on March 24, 2009 at 12:13 PM

And the creator of this suicidal loan product is going to FHA? Obama is an idiot and a liar – he doesn’t want to fix anything.

Jaibones on March 24, 2009 at 10:52 AM

Of course he doesn’t want to fix it. Obama’s a former ACORN lawyer/activist (i.e. shake-down artist) who agitated for the creation of these stupid programs (and then benefitted from exploiting them) in the first place.

AZCoyote on March 24, 2009 at 12:25 PM

Picture the captain of the Titanic and his officers with the only lifeboats on the ship, WANTING to sink the unsinkable.

That is Soetoro-Obama and his administration.

ex-Democrat on March 24, 2009 at 12:26 PM

Shouldn’t this guys picture be in the postoffice… along with Dodd, Frank, and the rest of the people who got us into this mess.

el rey on March 24, 2009 at 12:38 PM

Biden can’t be worse.

darktood on March 24, 2009 at 12:49 PM

Your blaming the handgun for the murder, not the person who pulled the trigger.

DrW on March 24, 2009 at 12:09 PM

Both parties deserve equal blame in this mess. Fannie and Freddie created the products and the mortgage brokers ran with them all the way to the bank and then over the cliff. They could have restricted this product to retail banks and had the necessary quality control, but they wanted the big volumes that would impress their regulators and the Barney Franks of the world.

rockmom on March 24, 2009 at 1:29 PM

Same song, second verse

Vashta.Nerada on March 24, 2009 at 1:42 PM

Thank you so much for putting this post up. I just used the information in it when I called one of my senators and spoke with a staffer on the phone.

This makes me so angry. I just cannot even tell you.

INC on March 24, 2009 at 3:25 PM

rockmom on March 24, 2009 at 1:29 PM

I did bring up Barney Frank and Chris Dodd on the phone as well. It is infuriatingly ridiculous that Frank called for the prosecution of those responsible for the financial meltdown. His lying and denial has reached the point of dementia.

INC on March 24, 2009 at 3:27 PM

Fox, meet chicken coop.

smellthecoffee on March 24, 2009 at 4:36 PM