And who is at fault?

[TheSpecialist]

Looks like the regs were for mortgage lending were eased under Klinton. You see it's good for votes to take care of those who can't take care of themselves...





eptember 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES

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.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
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.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

[spence]

Originally Posted by TheSpecialist

Looks like the regs were for mortgage lending were eased under Klinton. You see it's good for votes to take care of those who can't take care of themselves...

Blaming this on Clinton demonstrates a lack of understanding of the problem...

Yes, easing lending rules certainly contributed to the issue, but Greenspan's monetary policy, credit default swaps, removing the barriers between lenders/investment houses/insurance, mark to market, greed, probably some illegal activity, etc... all got us to where we are.

-spence

[Bronko]

Originally Posted by spence

Blaming this on Clinton demonstrates a lack of understanding of the problem...

Yes, easing lending rules certainly contributed to the issue, but Greenspan's monetary policy, credit default swaps, removing the barriers between lenders/investment houses/insurance, mark to market, greed, probably some illegal activity, etc... all got us to where we are.

-spence

Actually Spence is right. It wasn't all Clinton's fault. Jimmy Carter actually got the ball rolling with the Community Revinestment Act (CRA) which required banks to lend to poor, unqualified candidates in urban areas and "redlined" or prohibited wealthier borrowers fro participating. It wasn't until 1993 when Clinton increased access to mortgage money for poorer and distressed communities relaxing the CRA's standards even more.

Couple that with two decades of that horrendous lending practice with the ineptitude of leaders like Barney Frank who systematically denied any problems with Fannie or Freddie. Sprinkle in the requisite corporate greed, CEO payoffs and politicians taking cash "donations" from these same companies they are now assailing... voila...Mortgage Meltdown.

[spence]

Are you forgetting that President Bush worked also to expand homeownership to lower income families as part of his pledge to create an "ownership society"?

And how about the markets who found a way to make money off of these sub-prime loans like they were investment grade stocks? So much of the problem here is that they don't know where the risk is anymore.

Like I said, there's a lot of blame to go around.

-spence

[BraveSirRobin]

Originally Posted by Bronko

Actually Spence is right. It wasn't all Clinton's fault. Jimmy Carter actually got the ball rolling with the Community Revinestment Act (CRA) which required banks to lend to poor, unqualified candidates in urban areas and "redlined" or prohibited wealthier borrowers fro participating. It wasn't until 1993 when Clinton increased access to mortgage money for poorer and distressed communities relaxing the CRA's standards even more.

Couple that with two decades of that horrendous lending practice with the ineptitude of leaders like Barney Frank who systematically denied any problems with Fannie or Freddie. Sprinkle in the requisite corporate greed, CEO payoffs and politicians taking cash "donations" from these same companies they are now assailing... voila...Mortgage Meltdown.

Nope. Still not understanding the problem. The idea that it is all created by long-departed Democrats with a "sprinkling" of corporate greed is just spin to try the make the mess stick only to Democrats. Someone's been getting their briefings from AM radio by the sound of it. The proportion of mortgages that are not performing is bad, but not fatal by itself. If it were just that, banks and brokerages would be retrenching and building up capital, not vanishing utterly with a popping sound. Mortgages, good and ill, have been repackaged, sliced and diced in an awful lot of ways and those parts and packages, many of which may actually pay in the end, have become illiquid.

You don't make it to stardom in the financial world by making money for your institution. You make it by making more money for your institution than the other guy is making for his. The pressure to identify angles, inefficiencies and arbitrages is serious and the rewards if you do are staggering. So people sell a billion of this and buy a billion of nearly identical this, certain they're right about the latter being worth a shade more than the former. An awfully large proportion of financial crises consist in people being right, or only a little wrong, about the value of the two sides of their trade, but oblivious to the liquidity of one side. My understanding is, that's what's happening now.

If this were about a mortgage hangover from the Carter or Clinton administrations, nationalizing the mess would be a lot cheaper and quicker. The institutions involved would make the claim that "you made us issue these crap mortgages; now you can clean it up." That's not the problem. Nobody forced these guys to shove bizarre ARMS on everybody as hard as they could, to insure them and securitise them the way they did or to screw up their balance sheets the way they did. These are what M. Lewis called "big swinging d***s" who thought they knew everything and were wrong. Did you read about the AIG unit that sank that company? They thought they found a way to mint money and they were running the presses day and night. At no point was Jimmy Carter twisting their arm to force them to do credit default swaps or whatever the hell they were doing.