Flashback to 1999

[Missoula Griz]

Flashback to 1999: Origins of the Credit Crisis

From the NY Times on September 30, 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 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."

 

Edited October 1, 2008 by Missoula Griz

[moneymakers]

House Speaker Nancy Pelosi has directed nearly $100,000 from her political action committee to her husband's real estate and investment firm over the past decade, a practice of paying a spouse with political donations that she supported banning last year.

[AtomicCEO]

So your argument is that these "minorities and low-income consumer" loans are the ones defaulting now?

 

Can you provide some statistical information to back that up?

[Missoula Griz]

So your argument is that these "minorities and low-income consumer" loans are the ones defaulting now?

 

Can you provide some statistical information to back that up?

 

 

Hey Ricardo,

 

I was not trying to make this personal.

[Azazello1313]

So your argument is that these "minorities and low-income consumer" loans are the ones defaulting now?

 

Can you provide some statistical information to back that up?

 

so you'd like statistical information to back up the assertion that the subprime mortgage mess is related to subprime mortgages.

[CaP'N GRuNGe]

I think he's saying it's pretty easy and convenient to blame the jews brown people for all our problems.

[Azazello1313]

I think he's saying it's pretty easy and convenient to blame the jews brown people for all our problems.

 

it's not a racial issue. it's an issue of loaning money to people who couldn't pay it back by ever more cretively reckless mechanisms. the only people who ever tried to bring race into it were the people patting the lenders on the back because their recklessness was increasing minority home ownership.

[Missoula Griz]

it's not a racial issue. it's an issue of loaning money to people who couldn't pay it back by ever more cretively reckless mechanisms. the only people who ever tried to bring race into it were the people patting the lenders on the back because their recklessness was increasing minority home ownership.

 

 

Exactly!

[Skilly]

Is that when the ARM loans started becoming available? Seems like that was part of the problem also.

[wiegie]

The mess pretty much started in 2002-03 when the Fed dropped the federal funds rate to 1% (the lowest in 40 years) combined with a ton of money looking to go somewhere in the wake of the dot.com bust and the Enron and Worldcom stock market scandals. The world was looking for a place to puts its money and the American real-estate market seemed to fit the bill. It really was not regulations that caused the problem, it was people looking for the highest rate of return (and what better than real-estate since it is collateralized and US housing prices never go down).

[Sugar Magnolia]

Is that when the ARM loans started becoming available? Seems like that was part of the problem also.

 

Can't give you an exact year but brokers have been offering ARMs for over 20 years.