February 2, 2009
Even New York Times Saw the Crash Coming
It seems everyone knew that forcing banks to lend based on skin color instead of ability to repay was going to lead to disaster — even the New York Times. From the September 30, 1999 edition:
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. … 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.
The Gray Lady's crystal ball didn't mention that this would bring the entire economy down, as we know now.
A little more background:
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. …
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.
Race-based mortgages started under Carter with the insane Community Reinvestment Act, and were pushed aggressively under Clinton. Now Obama, who as a lawyer for ACORN was involved in using the CRA to browbeat banks into making bad loans, the financial crisis this lunacy caused is being used as a pretext to plunge us into a still worse crisis with the cataclysmically wasteful porkulus, I mean, stimulus package, in an apparently deliberate attempt to recreate the Democrat Party's glory days of the Great Depression.
Elections have consequences, all right.
On a tip from xantl.
Posted by Van Helsing at February 2, 2009 7:00 AM
Damage was done by the CRA, and the Clintons, and HUD and Freddie, and Fannie, and Greenspan's low intrest rates for too long. One thing that I think was gigantic though was the Commodities Futures Modernization Act of 2000 ushered through congress by Phil Gramm. I think we need to reverse that CFMA. Email me.
Posted by: Steve Van Loon at February 2, 2009 8:55 AM
It's not that loans to big risks were made at all, it was the size of the loans. Housing prices were artificially inflated in some cases and in others genuinely way overpriced overheated markets were overlooked during mortgage issuance. There's no reason a family with a combined income of $60K should be given a 5% rate on a $300K principle which increases to 11.5% after two years. ZERO.
My combined income is just above $60K and the principle on my house below $130K. It went from 7.3% to 10.3% after two years. I could stand it because the principle was low. Had it been for a $300K-$500K home in the burbs instead of the inner city, it would have killed me on the spot after two years.
There need to be rules on the amounts lent with respect to ability to pay ongoing. Instead, the scene is thick with people who will arrange sweetheart deals with money back at closing on colossally overpriced pink elephants and feed into the idea that is common in America, NOT that you have a right to get what you can afford, but that you have a right to get any house you want. People think that they have an intrinsic right to live wherever they choose regardless of the prevailing housing costs.
Sorry, no. Come live in the city, make a homestead, and invest your own damn money like I did. I am urban fricking renewal.
Posted by: suitepotato at February 2, 2009 1:35 PM
My pet peeve is advertisements that bleat about what people deserve ("You deserve X (where X
Posted by: Jay Guevara at February 2, 2009 8:55 PM
Oops. That should read "where X is not equal to what you earned."
Posted by: Jay Guevara at February 2, 2009 8:56 PM