From a letter sent to President Bush by Barney Frank, Nancy Pelosi, Maxine Waters and 73 other Congressional Democrats on June 28, 2004:
We urge you to reconsider your Administration's criticisms of the housing-related government sponsored enterprises (the GSEs) and instead work with Congress to strengthen the mission and oversight of the GSEs. We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing.
Until recently, we have been disappointed that the Administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the Administration's legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs' affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.
Our position is not based on institutional loyalty, but on concern for the GSE's affordable housing function. We appeal to you to agree to work on legislative proposals that foster sound oversight and vigorous affordable housing efforts instead of mounting assaults in the press. We also ask you to support our efforts to push the GSEs to do more affordable housing. Specifically, join us in advocating for more innovative loan products and programs for people who desire to buy manufactured housing, similar products to preserve as affordable and rehabilitate aging affordable housing, and more meaningful GSE affordable housing goals from HUD.
In closing, we reiterate that an exclusive emphasis on safety and soundness, without an appropriate balance in focus on the affordable housing mission of the GSEs, is misplaced.
The graph above helps to explain the housing environment in June 2004 when the letter was sent to President Bush:
1. The homeownership rate was at an all-time historical high of 69.2% in the second quarter of 2004, and had increased by more than 5% from 63.9% in the first quarter of 1991.
2. Home prices had been inflating at a rate far greater than the general price level for almost a decade, as the unsustainable housing bubble was on its way to the 2007 peak in home prices. At the time the letter was written in 2004, home prices had appreciated by 85.4% since 1991, which was more than twice the 39.6% increase in the CPI over that period (see chart above).
So at the same time that homeownership was peaking and home prices were close to peaking, both at unsustainable levels, the Democrats in 2004 were still pushing for all of the policies that eventually caused the global financial crisis, mortgage tsunami, and housing bubble: affordable housing through lower down payments, looser underwriting standards and higher leverage.
Five years later in 2009, the U.S. House of Representatives Committee on Oversight and Government Reform concluded that: "The consequences of these policies [the political obsession with homeownership] have brought the entire global financial system to the brink of collapse, destroying trillions in equity and untold numbers of lives. It is essential to reexamine the borrow-and-spend, high-leverage policies that became prevalent in the mortgage market as a result of well-intentioned-but-reckless decisions made by elected officials on behalf of the American people."