Okay, so a few of you just can’t seem to admit are not convinced that Fannie Mae had anything to do with the mortgage crisis. Here’s another attempt at making the point that the government created this financial crisis, not the free market.
Here’s how Fannie Mae is tied to the home mortgage crisis.
From The New York Times Business section, September 30, 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.
[...]
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.”
[...]
Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
[Emphasis mine - CT]
Fannie Mae, under pressure from the Clinton administration, encouraged banks to lend to people who were not qualified. Fannie Mae took on the risk because it was backed by the government. Lenders made loans that they were not making before this policy change due to the risk. Fannie Mae re-wrote lending guidelines because it knew that the government would be there to bail it out.
And it is – with the your money.
October 3rd, 2008 at 6:34 pm
“are not convinced that Fannie Mae had anything to do with the mortgage crisis.”
LOL…they needed to be bailed out…of course they are a part of this crisis, but they are not the *cause* of it. Did the GSEs need to listen to the “banks, thrift institutions and mortgage companies” in the first place when they wanted to “make more loans to so-called subprime borrowers”?? The markets that were created for these “subprime” mortgages and the subsequent “bundling” of loans to be sold of was only allowed after degregulation in the late 1990s. In 2000, due to a re-assessment of the housing market by HUD under the Clinton administration, anti-predatory lending rules were put into place at Fannie Mae that disallowed risky, high-cost loans from being credited toward affordable housing goals, but then, in 2004, these rules were dropped by the Bush Regime and high-risk loans were again counted toward affordable housing goals. The record is very, very clear on this.
What did the conservative American Enterprise Institute have to say about the companion bill to the one that McSame signed onto in 2006 (16 months after it had died)?? They called it “worse than current law.”
http://www.aei.org/publication.....detail.asp