1999 NYT Article "Fannie Mae Eases Credit To Aid Mortgage Lending"
It light of our economic problems our country is facing today, I've heard the liberals continually spew that this problem has come about because of the Bush administration. Really? Is that true? I think not and here is an 1999 NYT's article that proves this problem is from the Clinton Administration.
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.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
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.
''From
the perspective of many people, including me, this is another thrift
industry growing up around us,'' said Peter Wallison a resident fellow
at the American Enterprise Institute. ''If they fail, the government
will have to step up and bail them out the way it stepped up and bailed
out the thrift industry.'' Read the rest of this article here.
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Comments
So you are ready to blame this whole mess on a 1999 NYT article about fannie mae? Are you being serious? If you are I am curious as to your answers to the following questions:
1. Did you take a look at Credit Default Swaps on the impact on leverage companies like AIG exposed themselves too?
2. Do you have any clue as to the notational value of credit default swaps globally and just what impact that may be having on the situation?
3. Do have any kind of reference point as the relative levels of leverage hedge funds have taken on in 2007 compared to 1999?
4. Do you know about Sarbanes-Oxley and what mark-to-market accounting means?
5. What is the Glass-Steagall act?
Hopefully you have an understanding of these issues when you heap the blame for our financial crisis purely on Fannie Mae. Any serious financial analyst and economist would disagree vehemently with you but at least you have tried to understand the issue and not cherry pick a right wing talking point.
Understanding the above would probably lead most REASONABLE people to the conclusion that no particular party is free of blame. Sorry to blame this issue on Fannie Mae and use a single NYT article as proof is a microcosm of the problems we face in this polarized nation. Why search for the truth when you can satisfy your desire to smear opposition view points in the simpliest way possible right?
Perhaps the disintermediation of the banks over the last 20 years also contributed? Of which Clinton was a part of including the Bushes. But you bring up a good point when you say a "relatively small" program. There are ~40million mortgages in the US of which 97 to 98% are working just fine (for now). With the median mortgage at ~250,000 if you impair them on average 100k this is a 100 billion dollar problem (source: Financial Times). Why did Paulson have to ask for 700 billion then? Why has the market lost trillions? All because of Clinton and Fannie Mae? please. I am sure you recall when the two Bear Stearns hedge funds failed. Merrill Lynch was more than happy to let BS leveraged $ take crappy BBB structured products off their hands and gave them financing to do it. When Merrill Lunch decided to change the way they viewed the risk of these instruments and started asking for collateral the funds failed and the whole industry reassessed the valuations of the structured products and I am sure I don't need to tell you what happens in a highly leveraged, highly illiquid investment environment when there is a fundamental change in the pricing of risk. If these products were priced properly to begin with account for the fact they were risky as they included subprime debt, this situation would have been mitigated substantially. So who allowed the mispricing? That might be the real question. So my point is this was going on a lot making it HIGHLY simplistic to blame the Fannie Mae program. Clearly there were relations between players in the capital market that exposed the general market to unreasonable risk and I personally can't be sure what party or who is too blame unlike the message above where infidel, based on an article from 1999, concludes: "proves this problem is from the Clinton administration." It just frustrates me, and I know it also comes from the other side as well, that people allow their ideology to effect their judgement of the situation. This is just music to a politicians ears because it means that he knows his followers will not hold him accountable as we will look for ways to get him off the hook and blame the opposition.
Rise above your ideology and SEEK THE TRUTH. Very few politicians claim an ideology and then practice it if it means relinquishing their power so why should we hold our ideologies firm at all times? Bad policy.