[StBernard] Flashback to 1999: Origins of the Credit Crisis

[Westley Annis]

interesting - jd


	
https://www.istockanalyst.com/article/viewarticle+articleid_2644218.html
	
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	If you want to point fingers at someone responsible for a big part
of todays financial mess, this may be of interest to you.

	 

	  

Flashback to 1999: Origins of the Credit Crisis 


By: Mark J. Perry <http://mjperry.blogspot.com/>    Tuesday, September 23,
2008 12:32 PM


>From the NY Times on September 30, 1999: "Fannie Mae Eases Credit To Aid

Mortgage Lending
<http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F
958260&sec=&spon=&pagewanted=all> ":

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 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
1990s by reducing down payment requirements,'' said Franklin Raines, Fannie
Mae's chairman and CEO. ''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.'' 

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 1980s (How
prophetic!).
'
'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.''