

Fannie Mae Eases Credit To Aid Mortgage Lending - 1999 - breck
http://www.linkrap.com/FannieMae1999

======
TheWama
Ex-Freddie-Mac-Now-Cato-Economist Arnold Kling claims (in this interview:
<http://bloggingheads.tv/diavlogs/14744>) that Fannie basically had to lower
their requirements in order to meet the HUD requirements mentioned at the end
of this article. So a well-intentioned but unaccountable leader makes a
decision with unintended consequences, but because that decision reverberates
through the market power of enormous governmental structures, it leaves a much
larger mark than would be otherwise possible or likely.

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fnazeeri
In a lot of ways this is an indictment of "social engineering." But I'd argue
there are other factors at work here since "easing the requirements" is the
equivalent of holding the door open...the lenders are the ones that walked
through...

~~~
johnrob
The government threatened lenders who were being too conservative,
interpreting it as discrimination.

~~~
logjam
Oh, it's a just a whole hell of a lot more complicated than that. The really
big threats came from big banks anxious to keep their subprime accounting
tricks going as long as possible, and to keep up their oh so profitable
derivatives game. The government SINCE 1999 has been quite anxious to keep the
charade going as well, since housing and bubble equity was the one shell game
that made the economy look like it was growing.

This article, from NINE YEARS AGO, is floating around the right wing
blogosphere a lot, accompanied by pretty clueless commentary. Do people really
think that if what this program became (and it changed _significantly_ from a
program that was simply designed to help more people buy a home) wasn't making
bushel barrels of money for the people who helped keep a certain political
party in power for most of this last decade, that it would have been allowed
to remain?

What the hell has been going on the last nine years? Has there been _anyone_
at the helm?

~~~
yummyfajitas
>wasn't making bushel barrels of money for the people who helped keep a
certain political party in power for most of this last decade, that it would
have been allowed to remain?

Exactly right. Bush did try to push some sort of regulatory scheme back in
2003 which may have prevented some of this, but a certain political party
prevented it.

"Significant details must still be worked out before Congress can approve a
bill. Among the groups denouncing the proposal today were the National
Association of Home Builders and __Congressional Democrats __who fear that
tighter regulation of the companies could sharply reduce their commitment to
financing low-income and affordable housing."

[http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF...](http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print)

The difficulty in this situation is that the Dems had a lot to gain by
opposing regulation, while Republicans would gain very little by pushing it.
So why waste political capital? Also, think about the narrative:

Anti-regulation: We want to help low income and minority homeowners.

Pro-regulation: We need to reduce lending to higher risk borrowers because
someday in the future, house prices might not go up, and that would be bad
because [insert all sorts of technical words here].

------
drewcrawford
Favorite quote:

>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. [emphasis added]

------
wastedbrains
Interesting that they thought they had the whole risk level thing down... I
remember reading in Good to Great how they had been able to buy riskier
mortgages and make a profit.

"While many stock analysts thought that, as the provider of home mortgages,
Fannie Mae's success would be completely determined by the spread in changing
interest rates, Collins tells us that Fannie Mae realized that the key to
Fannie Mae's market-independent success was not in the ratio of profitability
per mortgage. Rather, Fannie Mae could become the world leader in
understanding mortgage risk levels and profit by insuring that risk. Fannie
Mae's key ratio became profitability per mortgage risk level."

[http://www.thinkinglike.com/Essays/Good-To-Great-
Lessons.htm...](http://www.thinkinglike.com/Essays/Good-To-Great-Lessons.html)

------
powellb
I know the implication is to the current crisis, but to believe that sub-prime
is what caused our current problems is plain incorrect. Sub-prime is to
today's economic collapse as the Ferdinand's assassination was to WWI: a mere
catalyst, but the system was primed by fundamental issues.

~~~
miked
"I know the implication is to the current crisis, but to believe that sub-
prime is what caused our current problems is plain incorrect... but the system
was primed by fundamental issues."

You've simply stated an analogy rather than supporting facts. This does not
move the discusson forward.

From the _1999_ article: "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 expand them they did. The Community Reinvestment Act was signed into law
in 1977 by Jimmy Carter, when Democrats controlled both houses of Congress
(post-Watergate). It didn't have many teeth then, though, and the damage was
minimal. In 1998, Clinton signed into law a version with serious bite. It
allowed "community activists" such as ACORN (Association of Community
Organizations for Reform Now) to harass any banks they felt weren't
"reinvesting" in the "community", blocking future expansions, etc.

You'll notice that, of the 5,700 retail (as opposed to investment) banks in
the Federal Reserve System, only about 40 are in trouble. They just happen to
be the ones operating in America's larger cities. Rural and small town banks
are doing fine. Nor are State Banks in trouble. You'll also notice that
overseas retail banks are not having problems either. Strange, no?

The retail banks in the big cities, which were subject to pressure from
"community organizers", knew the subprime mortages were garbage and looked
around for ways to offload the risks forced onto them by government, so they
bundled the loans up into tranches ("securitization") and sold them to
investment banks like Bear Stearns, Morgan Stanley, Northern Rock (British
bank, now bankrupt), etc. Now the cancer of risk spread through the system and
bodies began showing up at the morgue.

It didn't take long for the fun to start. Superior Bank of Chicago failed in
July, 2001. According to a press release from the Office of Thrift
Supervision,

"Superior Bank suffered as a result of its former high-risk business strategy,
which was focused on the generation of significant volumes of subprime
mortgage and automobile loans for securitization and sale in the secondary
market. OTS found that the bank also suffered from poor lending practices,
improper record keeping and accounting, and ineffective board and management
supervision."

George Kaufman, a finance professor at Loyola University Chicago called
Superior's failure "a tale of gross mismanagement," adding that "[Superior]
was engaged in relatively unethical practices, fancy-footwork accounting,
playing it very close to the edge."

The Pritzker family, including Penny Pritzker, were fined a record $460
million for violations of the RICO Act.

<http://en.wikipedia.org/wiki/Superior_Bank_of_Chicago> (Sorry about the
Wikipedia link. The best I could do on short notice.)

Completely by coincidence, Penny Pritzker is Campaign Finance Chairpersion for
a very famous politician from the same city as Superior Bank. Who used to be a
community organizer in Chicago. Who used to do legal work for ACORN. This just
happens to be the same politician who received more money from Fannie and
Freddie in the last four years than any of the other 535 members of Congress.

Of course, you've already seen all this in the mainstream media, right? Right?

We are about to have the world's first Politically Correct Recession, boys and
girls, and You Are There.

Nothing to see here folks. Move along, move along.

~~~
dgabriel
Not exactly. Here's a great rebuttal from the other side of the political
spectrum, that makes some great points:
[http://www.prospect.org/cs/articles?article=did_liberals_cau...](http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis)

------
breck
"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." There are so many prescient
quotes in this article.

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SapphireSun
It looks like a stupid idea prima facie. Charge people you don't think are
going to pay more? What kind of "educated" individual thought that one up?

I'd laugh if it weren't on you and me to fix their stupidity.

------
jhancock
If you watch your last 30 years of politics, you see that both red and blue
parties were at the helm during significant decisions that effect us now. The
only thing you can conclude is both parties are full of dangerous "public
servants" and we should clean house.

DONT VOTE FOR PARTIES!!! VOTE FOR PEOPLE!!!!

