Posted on 09/20/2008 4:12:48 PM PDT by Jim Robinson
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.
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.''
CLEARLY this problem was initiated DURING the 'Toons watch - as were many others - and this was essentially a decision made IN the executive branch, not the legislative.
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.
Great job, Bill.
See post #15
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''BUSTED
Representative Melvin L. Watt, Democrat of North Carolina, agreed. "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing," Mr. Watt said.
Well, Bush tried to stop it in 2003 but the Democrats shot him down:
http://www.freerepublic.com/focus/news/2086850/posts?
And McCain tried in 2005, but the Democrats shot him down too:
http://www.freerepublic.com/focus/f-news/2086670/posts
I guess that was a rhetorical question......:-)
Bush’s fault. McCain knew better. Palin was still in high school and Joe Biden was undergoing cranial surgery. B.H. Obama was on sabbatical writing his memoirs in anticipation of his resurrection and Dick Morris was up to his eyebrows in toejam.
Clinton was in the washroom reading the instructions on a bottle of Shout...
http://www.freerepublic.com/focus/f-news/2086795/posts
Crony Capitalism (Dem style) [Obama, Raines, Fannie Mae]
Toledo Blade ^ | September 20, 2008 | Jack Kelly
Posted on Sunday, September 21, 2008 10:00:03 AM by Lorianne
President Bush proposed regulatory reforms in 2003, but Congress took no action. In 2005, John McCain and three other GOP senators proposed a strong reform bill. It died when Democrats threatened a filibuster. Democrats opposed reform in part because they feared it would mean fewer loans to poor people.
Fannie Mae CEO Franklin Raines was forced to resign in December, 2004, because of “accounting irregularities.” The Washington Post reported July 16 that the Obama campaign has called Mr. Raines “seeking his advice on mortgage and housing policy matters.”
Thanks for pointing me to the articles on Dubya’s and McCain’s
trys to bring FreddieMac/FannieMae back onto the rails.
I’d totally missed the initiative put forward by Dubya.
But the excerpt below should be part of any McCain adverts about
today’s debacle:
‘’
These two entities — Fannie Mae and Freddie Mac — are not facing any
kind of financial crisis,’’ said Representative Barney Frank of
Massachusetts, the ranking Democrat on the Financial Services Committee.
‘’The more people exaggerate these problems, the more pressure there
is on these companies, the less we will see in terms of affordable housing.
‘’
LOL!!! Barney, how’s that affordable housing thing working out now...
after you got your desired inaction to head off the mess!
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.
No, no, no! It’s free market capitalism that got us into this mess, and more fiddling with economic factors will get us out!
Hoover set this up, Roosevelt enabled it, Clinton misused it, and Bush used Roosevelt as inspiration for this bailout.
Tell me one thing...how does a COMPUTER discriminate based on race?
I would like to see the names. Please provide links to support your assertion. Vote out the perps.
“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....”
The problem began in 1977 with the Dem Congress passing CRA, and President Jimmy Carter signing CRA into law. It was a controversial law at the time that actually had more negative feedback against it than existed positive points for it, but the Dems utilized the only Pro CRA report provided by Boston Fed to proceed with the legislation IIRC.
Seems the Mortgage Industry managed to get around the law for 18 years until the Clinton misAdministration forced them to comply with the very bad legislation that is the CRA.
The article “Assault On The Mortgage Industry” from Dec. of 1993 at National Review by Robert Stowe England picks up at the point of the Clinton Administrations coercement of the Mortgage Industry. It’s informative reading for all concerned. Here’s the link:
http://findarticles.com/p/articles/mi_m1282/is_n25_v45/ai_14779796
Hey troll. Get it right. It's Palin's fault.
This is so typical of Democrap administrations: enact shady schemes, then accuse the Republicans of all kinds of corruption and mismanagement because the scheme collapses during their tenure.
ABSTRACT ABSTRACT: Allegations of inner-city insurance redlining are increasingly facilitated through the jurisprudence of "disparate impact," a legal doctrine holding that a policy or practice based on race-neutral criteria may nevertheless constitute illegal discrimination if it has a disproportionate adverse impact on racial minorities or women. Disparate impact analysis would require insurers to document a precise cause-and-effect relationship between a challenged underwriting variable and its associated risk. Moreover, they would be required to show that no "less discriminatory" risk-assessment technique is available. If it is not possible—or too costly—to meet this burden, insurers will have no choice but to abandon the use of those risk-selection practices and cost-based pricing mechanisms that yield a disparate racial impact. This will result in higher premiums and less insurance availability for consumers. Furthermore, dubious charges of unfair discrimination will exacerbate racial tensions and divert attention from the social and economic pathologies of which insurance costs are merely symptomatic.
Very true - both D & R have blame here -— but please give credit where it is due, and place the bulk of the blame where it belongs, too.
Bush and McCain BOTH made repeated efforts to address this, but they were blocked by Congress. Those two were not the only Republicans who were sounding the alarm. My memory is pretty dim about this subject, but I believe that even Sen.Snowe supported McCain in this effort to rein in Fannie.
Unfortunately, it only takes 40 Ds + RINOs to block this legislation, and they easily had enough votes.
Read the articles again: the reforms were stopped by a filibuster threat
MR. LUDWIG'S idea of ending discrimination is for blacks and whites to have the same rejection rates, regardless of the legitimate reasons for differences. The crackdown is already well under way, as the Administration turns many of its bank examiners into discrimination police by re-interpreting the Fair Lending Act of 1968 and the Equal Credit Opportunity Act of 1974.
And during the same Clinton years, Willie Brown was proposing that high school diplomas be given based on quotas and including whites in those quotas.
I still shudder to remember all that went on during the 90s...
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