Fannie’s ‘Equity’ Plan: The Drinking Game

Fannies Equity Plan: The Drinking Game. 

What makes equity so invidious as a governing tenet is that it involves not just helping people of one racial or cultural group but it has the effect of knocking struggling members of disfavored groups out of the game.

One type of parlor game relies on players’ ability to maintain their memory, logic and articulation – all while getting blotto. These alcohol-fueled “think and drink” games are highly challenging. Even Britain’s royal family engages in such diversions if Netflix’s “The Crown” is to be believed. The games have names like “Bizz Buzz,” “Ibble Dibble,” “Never Have I Ever” and “Roman Numerals.”

Real estate analysts, drowning in a vat of impenetrable gibberish generated by mortgage giants Fannie Mae and Freddie Mac, are increasingly in a state of crapulence. These valuators haunt public houses and thirst parlors as they contemplate the ideological potions they are being forced to swallow unmoderated. A new drinking game promises to make sense of it all.

Warning: The game robs players of brain cells before they begin imbibing. In fact, the worst thing a player can do for brain health would be to play this game without a drink in hand.

From “redlining” to “equity-based lending,” Fannie Mae – the oldest of the twins – has spent most of its checkered 80-plus years tailoring access to capital based on the color of a borrower’s skin. An immediate step toward ending racial division in America would be to simply abolish it and its younger sibling, Freddie Mac. Although the game hasn’t officially started, pour a stiff drink and take your first swig. “Yamas!” as they say in the back-alley tavernas of Athens.

Late last year, the Biden administration ordered Fannie and Freddie to develop housing “equity” plans. The results are in and they promise to give borrowers money for down payments in accordance with their race, lower interest rates for buyers with bad credit scores on the basis of race, and hand out free money to certain homeowners for home repairs or to substitute for “disruptions to income” – you guessed it – based on race. Drink. Kanpai! as parched businessmen in hotel lounges in Hokkaido Prefecture can be heard to call out as they power-wash desiccated tonsils. Kanpai! Kanpai!

In March, Vice President Kamala Harris unveiled a plan to compel home appraisers to increase their valuations of properties perceived to be owned by people of certain races while sidelining other borrowers whose races or cultures are not currently in favor. Doing so would put appraisers in violation of 42 U.S.C. 3605. With a twinkle of gallows humor in your eye, raise your glass and drink. Skål as the mead-swilling Norsemen once saluted feats of derring-do.

Now open Fannie Mae’s “Equitable Housing Finance Plan.” You can find it here.

With the document open, drink at the first mention of “equity” — a foggy notion denoting the coercive reapportioning of resources from one group to another based on racial or cultural generalities.

What makes equity so invidious as a governing tenet is that it involves not just helping people of one racial or cultural group but it has the effect of knocking struggling members of disfavored groups out of the game. As midnight revelers say in the pubs of Rotterdam, “Proost!” Take a drink.

Take a drink for Mark Calabria, the former director of the Federal Housing Finance Agency. He was able to effectively rein in Freddie and Fannie during his all-too-brief tenure. The federal agency, known more commonly by its acronym “FHFA,” provides oversight for the twin blobs. But on President Biden’s first day on the job, the president signed an executive order to make racial equity a top priority for every single branch of the federal government. This included the FHFA. Calabria is now gone. Feel the burn as the elixir hits bottom – Kapow!

Take a drink at the first mention of “valuation modernization,” code for Fannie’s dogged efforts over many years to keep appraisers from inspecting the properties they appraise. Bottoms up to the use of so-called “black boxes” to replace appraisers. We remember the flawed black boxes developed by S&P, Moody’s and Fitch to value mortgage-backed securities and collateralized debt obligations. They turned securities filled with toxic mortgages into investment-grade vehicles that were then purchased by pension funds. As they say in the landlocked Czech Republic: Na zdravi!

At the first mention of “affordable housing,” take a drink. Fannie and Freddie’s last big push for affordable housing began during the Clinton years. The move turned moderates into binge drinkers. The government-backed behemoths then crashed the U.S. housing market in 2008 by lowering down payment requirements and gutting underwriting standards. By June of that year, the blobs had acquired 16.5 million Alt-A, negative-amortizing, subprime or otherwise toxic mortgages, with a principal amount of $2.5 trillion. The resultant collapse was the worst financial crisis since the Great Depression.

Bottoms up at the first mention of “Special Purpose Credit Programs.” These vehicles will increase access to credit and encourage sustainable homeownership for only some borrowers – you guessed it – based on race. The practice is prohibited by U.S. law. “Gun bae!” as they say in Seoul.

Appraisers are also being pressured by Fannie and its allies in Congress to abandon the venerable sales comparison approach to value and its bedrock principle of substitution. Drink to the death of this once useful analytical tool! (Take two swigs if you’re wearing a Che Guevara T-shirt.)

Drink to the full faith and credit of the U.S. government, as it supports Fannie in helping only certain individuals, based on generalities, “deal with unexpected expenses and repairs, or temporary disruptions to income.” It implies Fannie will now be involved in running a social welfare program.

Drink at the first mention of The Fair Housing Act and the Equal Credit Opportunity Act. Somehow, these two pillars guaranteeing equality no longer matter.

Drink at the first mention of “climate.” Nearly destroying the U.S. economy in 2008, Fannie now seeks to help create climate resiliency plans based on the racial makeup of neighborhoods. The incompetent mortgage giant won’t be solving climate issues anytime soon. Count on it. Through beer goggles and jaundiced bumbershoots, take a drink. J sveikata – that’s Lithuanian for “cheers.”

Fannie and Freddie have been the source of significant taxpayer risk since their founding. As long as these government-sponsored enterprises are allowed to exist in their current form, it will be a sword of Damocles permanently hanging over the head of the U.S. economy.

Please drink responsibly.

Jeremy Bagott
Image credit flickr - A Wikid Election Night
Jeremy Bagott

Jeremy Bagott

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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32 Responses

  1. Avatar RT says:

    You nailed it Jeremy! L’chaim!

  2. Avatar MM says:

    The writer lost credibility with me when he blamed Fannie and Freddie for the 2008 housing crisis…failure to regulate the Shadow Banking System was far more responsible for the collapse then homeownership goals of the government…that no bankers were personally held responsible for their reprehensible actions is the biggest failure of our response to the crisis…until we stop privatizing profits and socializing losses, citizens of this country will continue to be the losers in catastrophic financial events.

    • Baggins Baggins says:

      Thankfully you’re not in charge of other peoples credibility. The concept is; poisonous protectionism. That’s when because the government becomes involved, for anything good accomplished, the net effect is always more negative. Murphy’s law, unintended consequences. “The banking system was far more responsible.” Agreed. And the banking system runs FNMA these days, the government GSE’s don’t even hold to their mantras which justified their positions in the first place. And lets get real; the lending institutions are so huge compared to the days of the GSE inception, the actual need for GSE’s no longer exists. And you can bet your bottom dollar that if all this risk being generated would be handled differently if not able to be offloaded to taxpayers by what has basically become a corporate welfare program which such welfare benefits will now also extend to regular borrowing citizens of select preferred heritage but not others. Salute` to Equality! The primary tool by which big lending leverages power and offloads risk is the GSE enterprises. So if you want to take a bite out of crime… Does anyone here really think that lenders would voluntarily shoulder more risk based on race when they could readily form a legal argument against that under standard contract law? The race based preference is made possible by the government, subsidies delivered courtesy of taxation without representation.

  3. Avatar Eric S Kennedy says:

    The Cobra Effect lives strong in our current administration. The consequences will be significant I’m afraid.

  4. I love this post! Kudos as I know it took some time and research for this amazing drinking game analogy!

    Ironic how racism which caused these issues results in actions by the Government to “fix” the problem that yes, you guessed it, involves racist actions against all other races that are not considered minorities. Let’s give every race that matters NOW to the government a chance to own a home… Sorry but not everyone is a good candidate for homeownership. Why? Because some people have no clue how to sustain that property, maintain that property, fix that property, update that property, PAY mortgage on time for that property, take pride in that property so that they will gain the equity they are supposedly starving for. Also they have no clue that by not doing these things called responsible homeownership, they negatively impact the rest of us who have to look at those run down homes. They exist everywhere not just in minority neighborhoods and they are the bane of existence to those people around them that take care of their homes.

    So while it seems like the golden dream ticket to own a home, guess what it is HARD work and if you do not follow all the things that are required to gain equity in your home and RESPECT your fellow neighbors, then go rent somewhere.

    As an Appraiser, I will NEVER be forced to over value “certain” neighborhoods. As long as buyers are paying less in one area over another valuations will follow suit. Fix the issues buyers have problems with and you will see values rise. Don’t fix the issues and Appraisals will NOT reflect anything other than what buyers are doing. Period! No government is going to tell me how to do my job. They cannot even do theirs!

  5. Avatar Jim says:

    Best article on the subject I’ve read. You nailed it. Honestly, I have no problem playing along with them, but they need to make the rules clear. First they need to identify the race of the borrower and assign a dollar amount to it. Maybe certain minorities are entitled to an appraisal that is 125% of value. Maybe lighter skin members of the same race are only entitled to an appraisal value that is 110% of value. While white females may be entitled to 100% of value, white males may only be entitled to 50% of value. Albinos, don’t even ask!

    I only ask that Fannie gives us this number before we go out to the property. Maybe they could provide us with a color meter to determine appraisal value. I now have to take 66 years of living through the days of Dr. Martin Luther King and toss them out of the window. Apparently treating people equally based on the content of their character rather then the color of their skin is now passe.

    For those of you that don’t think that the day of the equitable appraisal has begun, just ask the San Francisco appraiser that is currently being sued. Like I said. I’m willing to play along, just let me know the rules.

    • Baggins Baggins says:

      Oh Jim, these are untenable suggestions. Sarcasm understood but think of the end result of these proposals. In their tiny minds these rule makers somehow think they can force the invisible hand. They will do so by tacking on X amount based on certain color coded criteria. But what happens next? Does the increased value get recorded as a price? Will the increased losses be recorded as experienced or will that be subsidized too? How will these affect avm analytical systems which also analyze mortgaged amounts? At some point all the necessary multipliers to ‘true value’ will become obscured and impossible to track down. And of course as subsidy programs grow, additional subsidies will be demanded and extended. Market analytics will become meaningless. They’re going to break the entire system. The net effect will be ongoing uncontrollable inflation in residential housing price which due to subsidy will require more QE and even more inflation trickling down the line. Or as I like to quip; they’re burying QE in real estate but are unable to contain it. Soon.

      Back to the basics, we need people whom know how to balance budgets, these idiots are drunk with the power of government fiat money and have no intention what so ever to pay back borrowed funds. Of course they would agree such principals should extend to their constituents but not the opposing political party. Conveniently this is often a political gap drawn by racial and economic demographics. For a very long time there were many groups whom called for ‘winding down fnma’. Sadly, as the author touches on, hope for reform has been substantially diminished.

      So it’s a complicated issue with many layers and obvious political overtones. At the heart of the matter, and toss FDIC insurance in there, the core question is; Why should the government even be involved in lending and insurance services in the first place? Can’t these activities be regulated and sustained through traditional contractual engagement and contract law, independent insurance which measures true risk? As the issue grows and now your government is your lending guideline regulator, insurance systems administrator, your medical services commander, privacy destroying data broker. I’m just so glad the government is doing such a good job with food and product safety, financial stability, supply chain sustainment. We all need to stop entertaining this nonsense and work diligently to always shrink and never accept growth of government. Government does not solve problems; it subsidizes them.

  6. Scott Taylor on Facebook Scott Taylor on Facebook says:

    I would now like to make a racial adjustment to comps 1-4. Market data for that adjustment derived from K Harris.

    • Baggins Baggins says:

      Yeah, how exactly is this supposed to play out in the real world? There is no rule possible or guideline available which could be handed down to make sense of the act of falsely manipulating market value based on race.

      These race advocates obviously don’t understand how basic market valuation relationships work. All they apparently know is how to use legislative powers to manipulate markets. But when they run into the very base building block of all economic theory, market value itself, that’s when they’ve met their match. You can’t change the measurement for existing valuation benchmarks, it’s simply impossible. Otherwise there can be no such thing as value and all that is left is fiat, some distorted form of parity pricing which is uncoupled from any sensible application of the parity.

      It takes me back to NORM economics, we can’t create wealth and things of value from thin air, it’s impossible. We can not assign and redistribute wealth to create new wealth either, unless we specifically apply that to natural resources extraction and labor expansion. This entails that all subsidies regardless of when where or how much, actually detract from wealth building and hinder wealth generation, accomplishing the opposite effect of what subsidies to help were intended for in the first place. The more subsidies they apply, the more market manipulations they levy, the further away economic prosperity becomes. You can count on it, as their modern corporate economic theories consistently fail to deliver, who’s net effect is disastrous, debt spirals and wealth gaps have become truly astronomical.

      Generation of wealth requires that someone uses labor and material resources to first extract material then send that to market for compensation. All wealth in existence stems from physical resources and labor. Any and all acts of applied pricing parity merely shift the wealth in existence, and absolutely never creates new wealth. All acts of subsidizing anything merely results in wealth imbalance which will never be possible to correct as long as subsidies programs and parity pricing programs remain in place.

      The GSE’s will simply never get ahead of the trade turn via applied parity to actually help anyone. All they’ll accomplish is existing wealth redistribution, of which an ever dwindling portion will go to those they are trying to help as the hucksters whom set this all up continue to skim off the top. If these institutions want to actually help, they need to put people to work building affordable housing, which means stepping out of the way and releasing all the red tape and taxation.

      They could have spent all the time and money on returning us to a wealth generating society. Back in the day one could graduate high school with an electricians license, an hvac qualification, a welders certificate, carpenters qualifications etc, etc. I still have the super durable thick gauge metal box I made in middle school in my drawer, and because I welded then super spackle painted that thing with love and attention, it’s outlasted anything else I’ve ever acquired from retail purchases. Still have my really cool chess board I made in 8th grade wood working class too.

      We used to hit the ground running right out of school and contributed to wealth generation and societal stability. There were not collegiate or tech skills necessary and politics were mostly irrelevant to the average person, because government was substantially smaller and had less influence. Do you know how many people without hope and home would immediately jump into a skilled labor program where they could participate in building homes and earn their way over time to getting one of those homes themselves, while also gaining a career path while working? No credit extensions, subsidies, or corporate sponsorships necessary. We don’t need housing or lending reform as much as we need education reform.
      The health, robustness, and sustainability of the American economy is directly tied to the production of raw materials and the price at which those raw materials first enter into commercial channels. When raw materials enter trade channels at prices in balance with the prices of labor and capital, the economy operates on an earned-income basis with no buildup of public and private debt. Conversely, when raw materials enter trade channels at less-than-parity prices with labor and capital, the economy lacks sufficient earned dollars to operate on an debt-free basis, therefore, public and private debt accumulates.

      That simple explanation of raw material economics explains why America today suffers from more than $50-trillion in public and private debt and why much of it is unserviceable. (It’s a lot more than 50 trillion today, that’s a several decade old website.)

      • Avatar Jim says:

        If you’re looking for an argument regarding your info on real world market forces, I don’t think you’ll find one here. The problem is that I have to appraise in the world they are creating. Their world exists of race based winks and nods. They are asking us to give them a race based equitable appraisal, without saying so directly. That way they can play dumb if loan goes sideways.

        If they want something from me they just need to ask. If they want an appraisal from me, I’m happy to do a market based appraisal. Then if they want me to apply some magic formula to account for skin color, just let me know what it is.

        But if they want me to look at the skin color of the borrower and then expand my definition of neighborhood or pump up the value, they need to find someone else.

        Here’s the funny thing. Portland is the home of Nike, Intel, etc. Most of the high end properties I appraise are owned by non white borrowers. They appear to be very affluent. What kind of an adjustment should I make for them?

  7. Avatar Realist says:

    The underlying intent is to so screw up the real estate market that they will make the case of abolishing private property ownership altogether. Your living quarters will be assigned and you will be happy. And almost all of the people will be moved to urban locations. I have said this before, watch the original version of the movie Logan’s Run. What was supposed to be a sad comment on a possible future scenario in movie form, is instead part of the power obsessed elites/controllers playbook for us peons/drones/slaves. And it is getting all to close to reality.

    • Baggins Baggins says:

      Regardless if this is a sell out, a calamity of errs, or straight up conspiracy, that’s rather inconsequential from the appraisers perspective. Because given this long train of abuses and consistent denial to effectively manage such obvious issues which could have been so easily managed with more fairly balanced effective approaches, we can speculate with near certainty they’re all in cahoots. FNMA & TAF leadership is clearly either not qualified for the job or derelict in their duty. Over the last decade they’ve successfully wasted a million man hours and squandered billions of dollars because they could not simply separate appraisers fees from third party appraisal management fees, which was the original intention of dodd frank reg z C&R rules, to rectify the destructive influence of these two improperly co mingled fees for completely separate services.
      You have earned one free lawn mowing voucher. (restrictions apply, see voucher details.)

  8. Avatar David says:

    I’m not completely sure this makes sense. Considering that we are trying to remove racial bias by using racial bias seems counter productive. Maybe I just misunderstand the writers points but I think this is just putting a bandaid on the issue.

    I’m all for making mortgages more possible for all people but this isn’t the way.

    • Exactly! Somehow they fail to see the irony here.

    • Avatar Jim says:

      David oh David… Don’t approach this with common sense. You’ll get confused immediately. The writer of this article certainly isn’t advocating for this change. In fact, I’ve not seen a single reply that does. The best way to understand this is to forget anything Dr. Martin Luther King ever taught. Then imagine yourself as a slaveowner in the deep south, because that’s what they think you are. You’re job is to try and fix your evil ways. Obviously you should release the slaves. But would that make them whole? Certainly not. You need to divvy up your plantation and promise any future earnings you may have to them. Now you are the slave. Problem solved.

      • Baggins Baggins says:

        Quick factoid: Some statisticians have stated that the actual minority base currently residing in this country, less than 15% of their ancestors were subject to literal slavery based practices. The vast majority of said populace base actually came after such direct slavery practices were abolished. Of that 15%, a substantial portion whom were subjected to such practices were not of african decent, but rather irish and scottish.
        “Governments have allowed this part of American and British history to be swallowed up. The contemptible black slavery has taken a grip on people associated with American History. Yet, no one will tell of these accountings that are well established on to the middle 1800’s.

        Slavery is not something to be proud of but it is a fact that happened to every country, kingdom and empire that has been on this earth. Each of us needs to search our hearts and find the answer to stop racial hatred. One place to begin; realize that the black race was not the only race in the last 400 years that was in bondage.”

        Process reference: Judicial Watch recently challenged the constitutionality of race based subsidy programs at the collegiate reference and won the case. Now they’re taking the issue to the supreme court. This could have profound implications regarding ongoing ‘appraisal modernization and reform’ activities. Am I the only appraiser around here whom subscribes to Judicial Watch? If you send them $35 dollars you get the nifty monthly magazine, paper print in the mail. I’ve never written to their constitutional lawyers to look at the appraisal industry but you can feel free to do just that if so inclined. They work pro bono on civil rights issues.

        We’d all like a vote in TAF appraisal foundation activities from here into the future. These people are not making decisions based on the best interest of all licensed appraisers, but rather continue to pander and sell out to special interest groups and companies whom have shown consistent motivation to exploit appraisers with no regard for our well being or industries working stability.

        Here is another factoid I picked up just recently and never knew about, although this makes perfect sense given our newfound enlightenment how these 501c not for profit companies have exploited American industries and culture. In the year 1913, we not only formed the federal reserve, but also laid the framework for non profit companies formation. These companies have been used as instruments to suppress free market enterprise and pander to special insider interests ever since. One can file investigative requests to IRS to see if any given 501c company is actually in compliance with 501c rules in the link below. And there has been substantial 501c3 rule reform so if they’re just riding the gravy train there is a possibility for non compliance.

        You know TAF, FNMA, REVAA, now that we don’t have anything better to do since your groups have hijacked then offloaded our career paths… Let’s focus on your compliance with complex rules instead of the focus always being on us. We’ve had enough and request a complete leadership change. If we can get your non profit status revoked, that’s probably going to be best for everyone in the long run.

        If appraisers are racist, that’ means REVAA amc management group has specifically focused company creation around racist behavior, further exploiting vulnerable populaces. If appraisers are racist it means TAF has no credibility and no longer serves a useful purpose. If appraisers are racist that means FNMA has been the primary influence to this end, being they set all the rules and framework for nearly the complete mortgage industry. These people are playing a dangerous game but the razor cuts on either side.

        Appraisers need an advocate. We want; full fee work, full spectrum of duties assigned to licensed individuals and nobody else, substantial reductions in outsourcing allowances, separated billing practices to protect us from predatory amc companies, and some sensible defense posturing against these absurd appraisers are racist claims. It’s probably an even better idea to wind down FNMA all together and just get the government out of lending, out of insurance services, and just out of our business and personal lives in general.

  9. Avatar FR says:

    This sounds like the movie War Games where the kid unwittingly plays the game “Global Thermonuclear War” and, in the end, discovers that the only way to win is to not play the game.

    Sorry Fannie, I think I’ll sit this one out.

    • Avatar Jim says:

      You’ve got this figured out. The problem is if you are going to do any work for lenders, you’ll have to participate. Here are just a few of the changes Fannies Appraisal Modernization are considering: One of the main focuses of the program is to encourage appraiser diversity. The reason for this is that only minorities can fairly estimate the value of a minorities property. If you don’t think this is the case, then you’re a racist exhibiting your white privilege. As you stated, the only way to win this War Game is not to play. I used to do 100% lender work, now I do maybe 10% lender work and the rest is private or for hard money lenders.

      Don’t get me wrong, encouraging appraiser diversity is fine by me. Although the company I work for is not in an area of the city with much diversity, blacks make up about 1/3 of our appraising staff. Were they hired because they were black? Certainly not. They are talented appraisers that just happen to be black. Do they have to deal with situations that white appraisers don’t? Absolutely. The problem is that it isn’t from white appraisers. If they miss the “target value” the client, borrower, or agent expects, of course it must be because the appraiser is incompetent. Now who’s the racist?

  10. Avatar Honest Appraiser says:

    The IVPI was a much more honest and professional approach than the corrupt AMC debacle we got stuffed with.


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Fannie’s ‘Equity’ Plan: The Drinking Game

by Jeremy Bagott time to read: 4 min