NYT 1999: Fannie Mae Eases Credit To Aid Mortgage Lending

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.

How do you fight something MANDATED by the President and makes people millions in the process? Not just the Investment banks, but loan officers, title reps, appraisers, construction, contractors, banks, underwriters, etc., etc.

The other stigma of political correctness was also used, as many of the subprime mortgages were to minorities, namely blacks and Hispanics.

There was a study in San Jose, CA that nearly 60% of all surnames in foreclosure were Hispanic, could be Filipino, but mainly Mexican.

The Left and MSM actually BLAME people for making the loans they MANDATED had to be done...oddly enough, they said these loans were predatory and should never have been made to the same credit risks you would not leave your wallet with, much less $200,000.

The Left wants Communism, plain and simple, and this is a way to centralize insurance, banking and home lending.

Please note there are many “HUB” type housing projects (rentals) near public transportation planned all over the Bay Area. Note, no home ownership and it will help the environement.

All this can be cured by common sense, but between Congress, Bush and Clinton, there is no logic. I fear an Obama presidency.

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FANNIE MAE OFFERS OPTIONS TO SLASH COSTS OF MORTGAGE INSURANCE
Press of Atlantic City, The (NJ) - January 15, 1999
Author: BYLINE: Associated Press

Seeking to open home ownership to more Americans, mortgage giant Fannie Mae is offering new options that will make mortgage insurance cheaper for home buyers who cannot afford large down payments.

(snip)

“We can cut costs to consumers, qualify more home buyers, and give them more home for their mortgage-payment dollar by reducing their mortgage insurance costs,” Raines said in a statement. “Eventually, we hope all low down payment borrowers will benefit from new approaches to mortgage insurance .”

(snip)

Fannie Mae said the new insurance options were made possible by the use of its “desktop underwriter” computer software and a new strategy for reducing losses from mortgage defaults.

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HOME OWNERSHIP AMONG MINORITIES SOARS UNDER CLINTON
Commercial Appeal, The (Memphis, TN) - June 3, 1999
Author: Ronald Brownstein Ronald Brownstein a reporter for the Los Angeles Times.

It’s one of the hidden success stories of the Clinton era: In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded.

The number of blacks owning their own home is now increasing nearly three times as fast as the number of whites; the number of Latino homeowners is growing nearly five times as fast as that of whites.

(snip)

All of this suggests that Clinton ‘s efforts to increase minority access to loans and capital also have spurred this decade’s gains. Under Clinton , bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat “redlining” by requiring banks to serve their low-income communities.

The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72 percent to blacks and by 45 percent to Latinos, far faster than the total growth rate.

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac- the giant federally chartered corporations that play critical, if obscure, roles in the home finance system.

(snip)

But with discrimination in the banking system not yet eradicated, maintaining the momentum of the 1990s will also require a nudge from Washington. One key is to defend the Community Reinvestment Act, which the Senate shortsightedly voted to retrench recently. Clinton has threatened a veto if the House concurs.

The priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42 percent of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer.

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HUD requires more mortgages for families of modest means
The Kansas City Star - July 30, 1999
Author: The Associated Press

The government is requiring the two biggest housing-finance companies, Fannie Mae and Freddie Mac, to finance more mortgages for low- and moderate-income families.

The move, announced Thursday by Housing and Urban Development Secretary Andrew Cuomo, means the companies must buy an additional $488.3 billion in mortgages from banks and other lenders, enough to provide housing loans for about 7 million families of modest means.

The total amount of such mortgages would be boosted to $2.4 trillion over 10 years.

HUD , which regulates Fannie Mae and Freddie Mac, has raised the proportion of mortgage loans they must earmark for low- and moderate-income families from the current 42 percent of their total purchases to 50 percent.

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HUD to Revise Mortgage Scoring
Washington Post - November 12, 1999
Author: Sandra Fleishman, Washington Post Staff Writer

EXCERPT

HUD officials say consumer groups are concerned that a disproportionate number of minorities are kicked out of the approval stream by the scorecards and referred to loan officers for time-consuming manual processing.

HUD officials said their scorecard will be more flexible in evaluating the creditworthiness of people whose records may have some flaws.

The score used as a main building block by most lenders is called FICO, named for Fair, Isaac & Co., the San Rafael, Calif., firm that developed scoring. The score assigns risk rankings to applicants based on complex statistical analyses of their credit histories. People whose credit reports show that they have always paid bills on time and that they use credit cards responsibly get the highest scores. Those who have been late in paying bills get lower scores.

Making the process transparent, said Cuomo, will not only ensure that lending is nondiscriminatory but also that it will attract more applicants to the FHA. And that will put pressure on Freddie Mac, Fannie Mae and other big lenders to follow suit, he said.

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