Thursday, September 25, 2008

From the New York Times 9 years ago...

I get a decent amount of email from folks telling me that the problems in the financial markets are from a lack of regulation (and you know how I feel about regulators).  I try to picture these jerks in my mind... 

But I digress...

The following is from an article in the New York Times in 1999, and was sent to me by one of my Wall Street trading buddies that I used to work with when I was at Bear Stearns (See? Even "right wing" Wall Street types read the New York Times)


September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES
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."

End of NYT article

Good stuff.

Back soon,


Mentatt (at) yahoo (d0t) com

3 comments:

Anonymous said...

Jeffers- Nobody here has suggested that the Democratic politicians have ever had a reasonable understanding of the economy and markets. Nor that Dodd and Schumer are not hideous and corrupt gasbags. Do remember that in the late 1990s, the congress was Repub and Clinton was going along with everything they disgorged.

It has been suggested that the Republicans in a greed and ego charged spirit of "conservative" triumphalism have turbo-charged the worst of Wall Street con operations. And have mounted assault after assault on the US Constitution- particularly in the area of government secrecy. And have lied and lied repeatedly on just about every single issue. And run up $4 trillion in govt deficts. And disgraced the USA by the use and defense of medieval torture. And gotten us bogged down in badly thought out foreign wars from which we are stuck and bleeding to death. And have bullied and de-funded the regulatory process so that it is ineffective- instead of revamping the regulatory structure.

OK so enough history- there are differences of opinion. We all need to focus on the oncoming freight train that is bearing down on us. And the strategies that will help us survive these fearful times.

Greg T. Jeffers said...

Bro:

I do not challenge ANY of your assertions re the Republicans of the past 8 years. There is NOTHING worse than a social conservative and a fiscal liberal - and that is what we have been suffering with.

I look forward, with great anticipation, to their demise. But I do not want the Frank, Schummer, Obama camp to take their place.

Someday, I will wake up and these 2 groups will be a bad memory. Of course a new, possibly worse group might be in power.

Andrew said...

... and there goes WaMu.