Very cute. An article just a little too good to be true has appeared on the New York Times site and seems to “predict” the current economic mess, while placing much of the blame on the Clinton administration.
Here are some choice snippets from “Fannie Mae Eases Credit To Aid Mortgage Lending” (emphasis mine:)
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.
Oh, I see — now it’s Clinton’s fault??
”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.’
Here’s the killer:
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.
And:
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.
Crazy. Everyone knows the problem is deregulation! Sheesh. Let’s see how long this stays up before they catch it.
1 response so far ↓
1 Steve Roth // Oct 25, 2008 at 2:24 am
Might be worth checking the facts on the ground before reiterating what have, in the last few weeks, become really hackneyed and discredited talking points (this one picked up from CNBC this morning).
One excellent example (out of many, many in the econoblogosphere), this from one who knows whereof he speaks:
http://bigpicture.typepad.com/comments/2008/10/private-sector.html
Check out the chart on that page.
(Here’s who’s talking: http://bigpicture.typepad.com/cv/2006/02/curriculum_vita.html)
* More than 84% of the subprime mortgages in 2006 were issued by private lending institutions.
* Private firms made nearly 83% of the subprime loans to low- and moderate-income borrowers that year.
* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA;
* Only commercial banks and thrifts must follow CRA rules. The investment banks don’t, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
* Mortgage brokers, who also weren’t subject to federal regulation or the CRA, originated most of the subprime loans.
And of course there’s this:
“I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families . . .
Home ownership is also an important part of our economic vitality. If — when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity — the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that’s important because it will help people find work.”
– George W. Bush, U.S. President, October 15, 2002 1:55 P.M.
My pet peeve is the ratings agencies. But there’s plenty of blame to go around
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