In early December, after days of deliberation, an Albany jury delivered corruption convictions to Joseph L. Bruno, New York State’s former Senate majority leader. On their way to finding Joe guilty of two federal felony charges the jury requested extensive read-backs and clarifications. Joe’s crony cozy deals were aired and re-aired. How often do New Yorkers get such detailed info about malfeasance in high places? About as often as Joe Bruno turned down gifts from pals doing business with the state.
Republican Joe Bruno’s abuse of power to gild his own lily was fierce. But his style? Old hat. Self-serving pols masquerading as servants of the people are a bipartisan New York special. And once they get in, they never get out. Some municipalities and counties have been under the same greasy thumbs since the daze of Rip Van Winkle. Oh but there’s hope! The Working Families Party (WFP) is making inroads in upstate races. Running candidates on the Democrat, Republican, Independence, or Whatever lines.
A tenant activist friend in NYC refers to WFP as the “Working Phonies Party.” Note to self — ask why.
More hope 4 New York; the possibility that state Attorney General Andrew Cuomo will be our next governor. Folks admire how Andy pounces on big-time financial fraudsters. Denouncing them seven ways to Sunday. That his pounces often result not in prosecution, but in payoffs aka fines and/or some form of political enhancement for himself, matters not. The non-necessity of prosecuting the powerful is another New York special. In late 2008, Michael Garcia, former U.S. Attorney for the Southern District of New York, decided that X Governor Eliot Spitzer shouldn’t face charges for availing himself of the money laundering services of the New York State-based, international prostitution ring he patronized. Stepping down to run his father’s real estate empire was punishment enough. Hey — Spitz knew he did a bad thing. When state attorney general, he excoriated money launderers and prostitution rings.
As a private citizen angling for another public berth, Spitzer is excoriating (expectorating?) anew. Coming on as Mister Reform in forums as far flung as the BBC and Slate magazine. In November, Spitz sniped Treasury Secretary Tiny Tim Geithner (former head of the New York Fed) for having “no backbone” while Wall Street partied with bizzaro securities and for flubbing the AIG bailout. Implying he, Spitzer, would have done it right. Prison’s loss might seem our gain if Spitz didn’t preen so nakedly. The man is a self love machine. Hard to understand why he had to hire hookers. As for bizzaro securities, Spitz as AG was a dud when it came to prosecuting the mortgage frauds that inflated the values on which said securities were based. Though he did excoriate predatory lenders and collect some mighty fine fines. . . .
For a fine example of Attorney General Andrew Cuomo in full NY pounce, think back to the brief period when the bursting housing bubble made it seem as if mortgage fraud perped by parties larger than brokers, bank clerks, and appraisers might finally matter. In November 2007, Attorney General Cuomo sent ominous missives to Fannie Mae and Freddie Mac. In the accompanying press release, Cuomo announced he was subpoenaing the government sponsored enterprises (GSEs) as part of an “industry-wide investigation into mortgage fraud.” An independent examiner would review all appraisals and mortgages purchased by Fannie and Freddie from Washington Mutual (WaMu), the nation’s largest savings and loan. (By the end of 2008, WaMu was the nation’s largest bank failure.) Transactions with other lenders would also be scrutinized.
Fannie and Freddie were suspected of buying and bundling fraud-inflated mortgage loans (as fodder for mortgage backed securities) from lenders colluding with several prominent appraisal entities. In a November 6, 2007, letter to Richard F. Syron, then Chairman of Freddie Mac, Cuomo said “GSEs may also have an interest in inflating (or at least in not questioning) the value of pooled loans . . . the higher the values of the loans closed, the greater the value for which the securities are sold on the secondary market.”
Imagine if Cuomo’s investigation proved Fannie and Freddie had colluded in inflating loan values! Wall Street would be shaken to its crap real estate foundations. The public would get an in-depth look at government sponsored mortgage fraud. Pols and appointed officials who control and/or oversee housing and finance at the federal level would be disgraced. In the heat of the moment, sweeping policy reforms would be enacted. Important heads might roll off to actual prison. And should Fannie and Freddie need a bailout, taxpayers would definitely balk at covering a pair of proven grifters.
Whew. The bomb never blew.
Five months after his missive to Fannie and Freddie, Andrew Cuomo closed his industry-wide investigation into mortgage fraud. On March 3, 2008, Cuomo announced an agreement had been reached with Fannie and Freddie and their official overseer, the Office of Federal Housing Enterprise Oversight (OFHEO). He also thanked Senator Chuck Schumer of New York, member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, for help in crafting the agreement. In Cuomo’s words, the agreement “begins to set right what had gone so wrong in the mortgage industry — rampant appraisal fraud.” Which occurred because “banks were putting pressure on appraisers to up the value of loans just to make a quick buck.” Nothing was said about prosecuting the unidentified banks that suborned fraud. (Though “predatory lending” got the de rigueur tongue lash.) As for the possible interest by Fannie and Freddie in inflating values, the topic was gone with the wind.
A few months after Cuomo closed his investigation, taxpayers bailed out Fannie Mae and Freddie Mac. Quoting CNN Money (The Most Expensive Bailout) “Congress essentially wrote a blank check to the Treasury Department in July 2008 to do what needed to be done to inject capital into the two firms.”
In the agreement struck with Cuomo, Fannie and Freddie didn’t acknowledge any wrongdoing. However, they graciously agreed to contribute $24 million for the creation of an “Independent Valuations Protection Institute.” The institute would monitor lenders doing business with Fannie and Freddie for appraisal code adherence. The code (the Home Valuation Code of Conduct or HVCC) was a brand new one shaped by Andrew Cuomo. And oh yeah, OFHEO. The board of the new institute would be approved by, and answerable to, Andrew Cuomo. And oh yeah, OFHEO. That a state attorney general was playing the primary role in setting crucial policy for national lending standards, and for two humongous enterprises sponsored by the federal government mattered not.
In September, 2008, as part of the full federal takeover of Fannie Mae and Freddie Mac, OFHEO officially merged with the Federal Housing Finance Board to form a whole new independent federal agency, the Federal Housing Finance Agency (FHFA). Prior to the merge, OFHEO was a sub-agency of the U.S. Department of Housing and Urban Development (HUD). Andrew Cuomo was HUD secretary between 1997 and 2001. As HUD head, he had the power to regulate Fannie Mae and Freddie Mac.
Weird thought: what if Andrew Cuomo’s industry-wide investigation into mortgage fraud had uncovered bad stuff at Fannie and Freddie going back to his own days at HUD? Cuomo would’ve had to investigate himself! For failures in oversight — and in policy. Cuomo was one of several HUD heads who pressed Fannie and Freddie to take on more and more subprime mortgages in the name of advancing affordable homeownership. An ideal shared by Senator Chuck Schumer. In 2005, when the danger of Fannie and Freddie’s bulging mortgage portfolio was raised in Congress, Schumer opposed stricter GSE regulation in the name of protecting affordable housing.
Schumer incidentally, receives a hefty hunk of his political contributions from the finance, insurance, and real estate industries. No biggie tho. These industries are traditionally generous to members of the Senate Committee on Banking, Housing, and Urban Affairs.
As for the home valuation code established by Cuomo and oh yeah, OFHEO, many in the real estate industry hate the HVCC and are trying to dislodge it. Claiming it keeps appraisal values artificially low. (Think they complained about appraisal values being artificially high?) Luckily, the Obama admin is tapping taxpayers in order to keep values inflated and housing affordable.
For those considering Andrew Cuomo as potential governor, the issue isn’t the goodness or badness of HVCC, but how he conducted his industry-wide investigation of mortgage fraud and how it reflects on his ability to potentially govern the Empire State.
New York government rolls on lack of transparency and autocratic attitude. Decisions affecting the fates and finances of some 20 million people are made by handfuls of power players in closed rooms. Hidden agendas and under-the-table alliances scotch democratic process. Even when results are beneficial (rarely) the public is treated like children who need to be administered, rather than as constituents. Hot button issues are come-ons for the rubes. Reform sentiment is exploited as a weapon for power grabs, extortion, and government expansion. Reformers are only reformers when it suits them. Questions are raised and accusations made but investigations fade away after advantages are gained or the wrong ox gets gored.
I’d say Andrew Cuomo is ready to lead.
Carola Von Hoffmannstahl-Solomonoff
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[“Fannie Mae and Freddie Mac come for your houses” photo by Ken Kennedy; CC BY-SA 2.0]