September 21, 2008

Fannie Mae Eases Credit To Aid Mortgage Lending to minorities and uncreditworthy

By STEVEN A. HOLMES

New York Times ~ 1999: In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. -------------------> More

2 comments:

Daryl L. Hunter said...

Exerpt - "In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."

Wow, how prophetic! They steered the train towards the cliff then excellerated.

Daryl L. Hunter said...

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, is an Act of the United States Congress which repealed part of the Glass-Steagall Act enacted in 1933 by FDR, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

Economist Robert Kuttner (among others) has criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. Economists Robert Ekelund and Mark Thornton have made similar criticisms, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".

A Bipartisan affair - Paving the way for today's financial supermarkets was, to be sure, a bipartisan affair. The law was signed by Bill Clinton, and Clinton's Treasury secretary, Robert Rubin, now sits atop Citigroup.

The new law blurred the lines among financial institutions, allowing them to dabble in home lending, stockbrokering, wealth management, investment banking, commodities trading, insurance and a slew of other activities that swirled into the miasma from which the current crisis grew.

This deregulation durning the Clinton administration pushed by Clinton an his treasury secretary, Robert Rubin put many minorities and credit unworthy in homes for a little while but now they are again out of their homes and our economy is in trouble.