“If your neighbor’s house is burning, you’re not going to spend a whole lot of time saying, ‘Well, that guy was always irresponsible, he always left the stove on, he always was smoking in bed’ … There will be time to punish those who set this fire, but now is the moment for us to come together and put the fire out.”

So says Sen. Barack Obama (D-Ill.) about the Great Financial Crisis. And he’s right. But once the fire is out, I want to learn a lot more about what happened at Fannie Mae and Freddie Mac.

We know that in May 2006, the Office of Federal Housing Enterprise Oversight released a report detailing extensive fraud at Fannie Mae under Franklin Raines, the former Clinton White House budget chief who ran Fannie from 1999 to 2004.

We know that many lawmakers ignored signs of trouble at Fannie and Freddie before that. In a 2004 video now playing on YouTube, California Democratic Rep. Maxine Waters lit into a regulator, saying, “We do not have a crisis at Freddie Mac, and in particular at Fannie Mae under the outstanding leadership of Mr. Frank Raines.”

We know that in 2005, some lawmakers tried hard, but unsuccessfully, to impose discipline on Fannie and Freddie. “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole,” said Sen. John McCain (R-Ariz.), a co-sponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005.

And we know that Fannie and Freddie, with significant support on the Hill, stiff-armed all who questioned them. And as they did, they took more and more risks.

Last week, Federal Housing Finance Agency director James Lockhart testified before the Senate Banking Committee.

He told the panel that in 2006 and 2007, Fannie Mae and Freddie Mac ignored “repeated warnings about credit risk.” In those years, Lockhart said, Fannie and Freddie “bought or guaranteed many more low-documentation, low-verification and non-standard [adjustable-rate] mortgages than they had in the past.”

In the first half of 2007, Lockhart continued, 33 percent of Fannie’s and Freddie’s new business was in funky mortgages — compared to 14 percent in 2005.

That suggests that executives from Fannie and Freddie — and mind you, these were the people who came after Franklin Raines — became more brazen even as they faced harsh assessments from regulators and calls for reform from lawmakers.

And then, it all went to hell. “The capacity to raise capital to absorb further losses without Treasury Department support vanished,” Lockhart testified.

As we come to terms with all this, some lawmakers are facing up to what has happened.

Criticized for his role in that 2004 hearing, Alabama Democratic Rep. Artur Davis released an extraordinary statement to Fox News.

“Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie Mae and Freddie Mac,” Davis said. “I defended their efforts to encourage affordable homeownership, when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit that when it comes to Fannie and Freddie, we were wrong.”

Now, that is a stand-up thing to say.

Davis also sent some blame Republicans’ way, which is surely deserved.

After the fire is put out, there’s going to be a lot more of it.

York is a White House correspondent for National Review. His column appears in The Hill each week.
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