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Tuesday, October 21, 2008

Mortgage Crisis Began Under Clinton

Our liberal friends keep telling us that the Bush Administration is responsible for the housing and mortgage mess and that Fannie Mae, Freddie Mac and the Democrats had nothing to do with it. The fact is that Clinton and other liberal Democrats pushed for easing of the rules, and Dodd, Frank and Obama resisted any tightening, as well as benefited financially for their efforts. Our friend, Gabe, unearthed this telling piece from the New York Times from 1999. Senator Obama, Bill Clinton was President then.

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES New York Times 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.

''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.

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10 Comments:

At 9:13 AM, Anonymous Anonymous said...

This is a perfect example of perception trumping reality. Republicans are in office and have been for 8 years thus they are responsible. This is the viewpoint of the average voter...Further, this judgement is made based on the president's party, not the House.

steve

 
At 9:22 AM, Blogger RussWilcox said...

No, the perception that Republicans caused this is wrong, and people like me are fighting to present the reality and counter the lies.

 
At 11:18 AM, Blogger rc_dahl said...

Congratulations!

I knew you would find a way to blame this mess on Bill Clinton. It's probably an extension of the "Clinton Recession" and would have occured sooner if we had not had George Bush in there to prevent it. Now with the prospect of an Obama presidency, the market simply fell apart.

Bob

 
At 1:39 PM, Anonymous Toronto realtor said...

Easing the rules is ok, while you have market which works. But when the most important price on the market - price of money, interest rate - is set administratively, problems will come, sooner or later. And if the interest rates reaches such crazy value like 1%, it's just a matter of time...You can't "buy" economic growth - and that's what was tried to be done after the year 2001...
Regards,
Julie

 
At 9:50 PM, Anonymous Roman said...

Thank you! atleast someone else thinks it started that way. I blame some of it on both bushes too. Mainly W.

 
At 5:12 AM, Blogger RussWilcox said...

To rc-deahl, There have been many Democrat disasters that we never get over. The Kennedy-Johnson Vietnam adventure. Carter's naive meddling in Iran. Clinton's inability and unwillingness to confront Muslim terrorism, and now, the housing and mortgage crisis arising out of Clinton's policies may bring us a radical-socialist President who hates his own country.

 
At 10:37 AM, Blogger K said...

I agree with you. Based on basic economics, issues in the economy begin long before they actually produce a poor outcome. It's good to recognize where the mortgage crisis began.

 
At 11:16 PM, Blogger Becky said...

I agree with Danny Schechter's comments in his newest book, "Plunder," when he states that the 3 main culprits are the Wall Street firms driven by greed who schemed up ways to securitize mortgages and made billions through subsidizing predatory lending, the regulators who didn't regulate and the media that looked the other way.

 
At 9:04 AM, Anonymous Anonymous said...

Russ, cudos for your site. It's easy for Dems to blame "Bush" for the mess. Let's remember that Clinton wanted every person in America to own their own home. Home ownership is not a given in this country. It is a hard earned right!! Very hard earned. If you are scraping by, don't go out and buy a $300,000 home. Do the math. Good grief! All these people, as sad as it is that they are being evicted, can you not do the math? If you are making $20,000 per year, do you really think you can buy a home that's valued at 10 times your income?? Don't play dumb and say you didn't know. Come on. I'm so tired of all this mess. Take responsibility! I'm not a republican or a democrat, however, my philisophy is NO handouts. Earn your keep!!

 
At 6:34 AM, Anonymous Anonymous said...

This is an excellent article that tells it all as it actually occurred. I've already cut and will paste it on Facebook and carry it with me and show it every time I run into a kool-aid drinking democrat.

 

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