September 25th 2008
1999 NYT Article Foresees Woe For Fannie In Cheap Loans
N
ine years ago, in the final years of the Clinton administration, the Barney Frank- Chris Dodd- Bill Clinton plan was finally ready to launch, and Fannie and Freddy opened their vaults to millions who otherwise would not qualify for a mortgage. Let’s set the Wayback Machine to Sept. 30, 1999 and see what the NYT has to say about this turn of events.
(Hat-tip to Wolf Howling for this; in a very unorthodox move, he nominated this ten-year-old story as his non-Council entry in this week’s Watcher of Weasels blogfest.)
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 Dem strategy on domestic issues is to build the base by making exceptions for the poor: Poor illegal immigrants have Dems pushing for citizen-like rights (and pay-outs) for them; poor blacks have become dependent on Dem largess, and so on. And here it is with mortgages for the poor. These are not mortgages for people who would qualify, were it not for racial discrimination, the story makes clear:
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 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.”
Franklin Delano Raines, that multi-millionaire who’s been talking econ with Barack … interesting. Who else is behind this?
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.
Those stockholders are lamenting the day they thought this was a good idea. The Clintonistas are busy blaming the Bushies.
Not everyone saw this as a good idea. The American Enterprise Institute – that conservative think thank that lately is being ridiculed by the media for its predictions about global warming – was prescient on the risks involved in Fannie Mae’s new “house the poor/create new Dems” strategy:
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.”
Too bad for America that the tentative moves became a full-on rush despite the doubts expressed by AEI and others. With that in mind, it’s worthwhile to consider what AEI is recommending as we gaze into the financial crevasse that started opening in Sept. 1999, with Fannie Mae’s new policy. Here’s a bibliography:
- Peter J. Wallison and Charles W. Calomiris write in the Wall Street Journal that blame for the current crisis should be directed at Fannie Mae, Freddie Mac, and their enablers in government.
- R. Glenn Hubbard calls for policymakers to take a long view in enacting “smarter regulation,” not just more regulation that may exacerbate the current crisis.
- Wallison addresses bank regulation–including the “flawed case” for regulating securities firms like commercial banks and how some non-bank institutions are weathering the crisis better than regulated banks–in recent issues of AEI’s Financial Services Outlook.
- In the New York Times, Vincent R. Reinhart writes that the impending election is making the government react to the crisis faster than may be prudent.
- In recent issues of AEI’s Economic Outlook series, John H. Makin addresses how the financial-sector problems will spill over into the broader economy and ways to better manage systemic risk.
- Alex J. Pollock writes that when government officials are faced with potential financial chaos, history shows that they always intervene and support the market with a bailout.
- Using the board game Monopoly as an example, Lawrence B. Lindsey explains the Wall Street crisis in Main Street language.
The Hubbard piece is a good starting point – take a few minutes and give it a read.
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