Ruining the housing market and contributing to the current financial crisis weren’t enough for the folks at Fannie Mae. Apparently, Fannie has been looking at getting into another racket: residential cap and trade. A couple of years ago, Fannie actually secured patents to enable them to cash in on this lucrative new line of business.
Of course, cap and trade is well beyond Fannie’s mission to increase home ownership. Fannie buys and securitizes residential mortgages from banks which then allow banks to issue more mortgages. This arrangement worked reasonably well until Fannie, with congressional prodding, started buying mortgages with low down payments from customers with low credit scores and insufficient incomes. Now we are dealing with the fallout. So far, taxpayers are on the hook for at least $145 billion in Fannie and Freddie losses, and the Congressional Budget Office expects the total cost to eventually rise to $389 billion.
Even while Fannie was poorly executing its primary mission of providing liquidity to the housing market, Fannie was looking to move into the completely unrelated residential cap-and-trade business. Recently, Congressman Issa and I learned that Franklin Raines, former CEO of Fannie Mae, had “invented” a scheme for “identifying, quantifying, and aggregating reductions in residential emissions into a tradable commodity.” In fact, Raines and others obtained two patents – 6,904,336 -- for this residential cap-and-trade scheme and assigned them to Fannie Mae. This was done without fanfare and without Congress, the housing industry, and taxpayers being informed about it.
Unfortunately, the circumstances behind this deal are cloudy and may remain so since Fannie is not subject to Freedom of Information requests. Nevertheless, Rep. Issa and I have written Fannie Mae’s CEO requesting an explanation for these patents. Fannie should not be straying from its fundamental mission and exposing taxpayers to further financial risk.
Congressman Chaffetz represents Utah's 3rd congressional district.