I'm sure y'all have seen this link floating around the Internet's already but I wanted to have this here for posterity. Below is an excerpt from a 1999 article in the New York Times by Steven Holmes titled Fannie Mae Eases Credit To Aid Mortgage Lending 

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 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.''

Although the article is particularly prescient there is one thing it didn't predict, which is how much this risk of failure would be compounded while remaining hidden due to the rise of Mortgage Backed Securities. Still, it is definitely interesting reading to see that someone called the current clusterfuck as far back as 1999.

Way to go Clinton administration, as always the road to hell was paved with good intentions.

Note Now Playing: Young Jeezy - The Recession (Intro) Note


Wednesday, October 1, 2008 4:47:08 PM (GMT Daylight Time, UTC+01:00)
Not just Clinton: all politicians. Check out this piece:

LAS VEGAS - As part of President Bush’s ongoing effort to help American families achieve the dream of homeownership, Federal Housing Commissioner John C. Weicher today announced that HUD is proposing to offer a “zero down payment” mortgage, the most significant initiative by the Federal Housing Administration in over a decade. This action would help remove the greatest barrier facing first-time homebuyers - the lack of funds for a down payment on a mortgage.

Speaking at the National Association of Home Builders’ annual convention, Commissioner Weicher indicated that the proposal, part of HUD’s Fiscal Year 2005 budget request, would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.

“Offering FHA mortgages with no down payment will unlock the door to homeownership for hundreds of thousands of American families, particularly minorities,” said HUD’s Acting Secretary Alphonso Jackson. “President Bush has pledged to create 5.5 million new minority homeowners this decade, and this historic initiative will help meet this goal.”

If you really want to understand where all this came from, take an hour to watch the economics profs at Princeton dissect the whole thing. See http://www.youtube.com/watch?v=Wj_JNwNbETA The subprime thing was a symptom, not a cause.
Thursday, October 2, 2008 12:19:30 AM (GMT Daylight Time, UTC+01:00)
Loosening credit for mortgages was not the problem. Even if all those people defaulted, the property would still have value and could be sold for some recuperation. There would still be liquidity in the market.

Fannie and Freddy went belly up not because people defaulted on the loans they gave out, but because they too, were heavily invested in mortgage backed securities. This was a way for them to fraudulently invest subsidized government loans in mortgages that were actually too risky for them to give to people directly.

In addition, the mortgage backed securities were not made up of loans from Frannie and Freddy, they were made up of loans from predatory lenders who extended credit to people who couldn't afford it, or didn't understand that their mortgage rates would shoot up. They were also made up of loans to people who planned to quickly flip investment properties but got stuck with two mortgage payments when the market dried up.

Thursday, October 2, 2008 1:36:09 AM (GMT Daylight Time, UTC+01:00)
The key player in all of this is FNMA. Look at their execs (particularly Raines and Garelick) and the comp packages that they were given (ask yourself "by whom?") which spring-loaded them to lower their creditworthiness standards. Long story - they eventually paid like $30 million in civil fines. They were not prosecuted criminally as were the Enron execs.

Now add the fact that gazillions of dollars were contributed by FNMA to senior congressional committee finance committee chairs and members (in order 1-4 of $$) Sen. Dodd (D-CT), Sen. Obama (D-IL), Sen. Schumer (D-NY), and Rep. Frank (D-MA). Frank? Isn't he the guy I just saw yesterday standing up for Speaker Pelosi? Every media story on that included comments that it was "inappropriate".

Add Rep. Wyatt (D-NC) who responded to a 2003 Bush effort to clean up that Clinton/Cisneros/FNMA debacle by saying of that effort: "I don’t see much other than weakening the bargaining power poorer families to get affordable housing."

Finally look into the **2005** Federal Housing Enterprise Regulatory Reform Act and the responses on both sides of the aisle. One such response, by Sen. McCain: “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.” -- Like the NYT, he was right on it back then. He was not alone, though, and yet it was defeated soundly! Look at who voted against it for some context.

PS: Former FNMA exec Raines is now an advisor to Sen Obama's campaign. SURPRISE!!! Well, not really.
Bob Denny
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