NYT 1999: Fannie Mae Eases Credit To Aid Mortgage Lending

The New York Times | 1999 | By STEVEN A. HOLMES

[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.

[traviskicks]

No worries, the Republicans in Congress and the Republican President and Republican Presidential candidate will steal our money to fix the mess created by the liberals.

[traviskicks]

ping

[Jim Robinson]

And the loser Ron Paul will do exactly what? Absolutely nothing.

[Brian S. Fitzgerald]

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

Top Recipients of Fannie Mae and Freddie Mac
Campaign Contributions, 1989-2008

Name	Office	Party/State	Total
1. Dodd, Christopher J	S	D-CT	$133,900
2. Kerry, John	S	D-MA	$111,000
3. Obama, Barack	S	D-IL	$105,849
4. Clinton, Hillary	S	D-NY	$75,550
5. Kanjorski, Paul E	H	D-PA	$65,500
6. Bennett, Robert F	S	R-UT	$61,499
7. Johnson, Tim	S	D-SD	$61,000
8. Conrad, Kent	S	D-ND	$58,991
9. Davis, Tom	H	R-VA	$55,499
10. Bond, Christopher S 'Kit'	S	R-MO	$55,400
11. Bachus, Spencer	H	R-AL	$55,300
12. Shelby, Richard C	S	R-AL	$55,000
13. Emanuel, Rahm	H	D-IL	$51,750
14. Reed, Jack	S	D-RI	$50,750
15. Carper, Tom	S	D-DE	$44,389
16. Frank, Barney	H	D-MA	$40,100
17. Maloney, Carolyn B	H	D-NY	$38,750
18. Bean, Melissa	H	D-IL	$37,249
19. Blunt, Roy	H	R-MO	$36,500
20. Pryce, Deborah	H	R-OH	$34,750
21. Miller, Gary	H	R-CA	$33,000
22. Pelosi, Nancy	H	D-CA	$32,750
23. Reynolds, Tom	H	R-NY	$32,700
24. Hoyer, Steny H	H	D-MD	$30,500
25. Hooley, Darlene	H	D-OR	$28,750

Includes contributions from PACs and individuals.
2008 cycle totals based on data downloaded from the
Federal Election Commission on June 30, 2008.

[penelopesire]

“Someone needs to run over to Wikipedia and edit this crook’s entry...
Andrew Cuomo”

I dunno...how do you ‘improve’ on East Coast liberal political ‘incest’?

LOL

[penelopesire]

Brian...a campiagn contribution does not equal a vote. Tell us which republicans actually ‘voted’ for this rubbish in 1999-2008..which bill..which year..and under which circumstances!

We need to know...so we can vote them out of office!

[Jim Robinson]

Yeah, they spread it around, heavily weighted to Democrats of course. And we know the Democrats were heavily involved in the farce, for example http://www.freerepublic.com/focus/f-news/2085235/posts , but what was the Republican involvement you alluded to?

[April Lexington]

No and yes.

[Munz]

So when they go broke AGAIN and we have to bail them out AGAIN who can we thank?

[Brian S. Fitzgerald]

All I heard was something on the radio yesterday, might've come from this source (note individual Republican career totals exceed that of Democrats for the top recipients):

http://news.yahoo.com/s/ap/20080919/ap_on_go_ot/freddie_fannie_pacs_list

Highest congressional career totals for contributions from PACs tied to Freddie Mac and Fannie Mae:

House Minority Whip Roy Blunt, R-Mo., $78,500.

Sen. Robert Bennett, R-Utah, Senate Banking, Housing and Urban Affairs Committee, $71,499.

Rep. Spencer Bachus, of Alabama, House Financial Services Committee, senior Republican, $70,500.

Senate Majority Leader Harry Reid, D-Nev., $60,500.

House Minority Leader John Boehner, R-Ohio, $60,500.

Sen. Christopher Dodd, D-Conn., chairman of Senate Banking, Housing and Urban Affairs Committee, $48,500.

House Speaker Nancy Pelosi, D-Calif., $47,000.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, $30,500.

• Fannie Mae's PAC total contributions to congressional races this election cycle through June:

• House: Democrats, $275,950; Republicans, $257,850.

• Senate: Democrats, $82,500; Republicans $83,500.

[Brian S. Fitzgerald]

Note how AP left out some names....

[Jim Robinson]

Better look up Dodd and Obama.

[Jim Robinson]

They spread it around, but here are top 5 listed above in post 124:

1. Dodd, Christopher J S D-CT $133,900

2. Kerry, John S D-MA $111,000

3. Obama, Barack S D-IL $105,849

4. Clinton, Hillary S D-NY $75,550

5. Kanjorski, Paul E H D-PA $65,500

[huldah1776]

I believe what happened was at first it was to finance lower income homes, but then the banks applied that to the middle class in general, giving them the balloon loans that came due to pop this year, am I right? It wasn’t the minorities that we saw being interviewed about losing their $400k homes, worth $200k.

[Silly]

Like, wow.

[Choose Ye This Day]

Fantastic find. This’ll leave a mark.

[adm5]

ATTENTION EVERYONE:

You don't have much time to act regarding Paulson's Bailout Plan.

This plan, as it is written, will give Hank Paulson UNLIMITED & UNCHECKED FINANCIAL POWER OVER THE UNITED STATES OF AMERICA!

That's right. President Bush won't be able to stop him; Nor Pelosi or Reid. He will be able to do as he pleases with NO OVERSIGHT! Do you really think this 700 BILLION number is all? That is a sanitized number so it won't scare the masses.

The true number is over a TRILLION and that's probably a floor - the ceiling could be upwards of double that...two TRILLION, or more? Let me write out just one billion (like a check) so you guys can truly appreciate this number.

$1,000,000,000,000

Why is there no outcry on FreeRepublic over this??! This is going to choke the next generations with impossible debt burden.

I see that many here are disturbed and you are complaining about it on these threads - but you must contact the people that can possibly save us from this nightmare bailout scheme RIGHT NOW!

You know, we FReepers fought hard on the immigration debacle and we WON. People here were hopping mad and weren't about to let The Gov't jam that stupid legislation down our throats!

Folks, this bailout scheme will harm our country immeasurably worse.

YOU MUST ACT NOW TO SAVE OUR COUNTRY! Get on the phones, and let your congresspeople and senators know that 'We The People' vehemently object to this financial coup that is about to take place.

CONTACT YOUR REPRESENTATIVES NOW! It might be too late by Monday morning - you should be calling them NOW - and tomorrow - yes Sunday! They are going to try and ram this through before the market opens on Monday. Call all of their offices. Leave messages. Talk to your family and friends and tell them to do the same.

[TheThinker]

So essentially the Clintonites forced lenders to lend money to the poor, particularly poor minorities whereupon they subsequently defaulted their loans.

To stem the bleeding, lenders bundled these loans in securities that they then sold on the open market that now is sending the world market into freefall. Along the way, Raines and Obama and Gorelick profited off this whole sordid affair.

Fair summarization?

[TheThinker]

So essentially the Clintonites forced lenders to lend money to the poor, particularly poor minorities whereupon they subsequently defaulted their loans.

To stem the bleeding, lenders bundled these loans in securities that they then sold on the open market that now is sending the world market into freefall. Along the way, Raines and Obama and Gorelick profited off this whole sordid affair.

Fair summarization?