Friday, October 03, 2008

Breaking news from 1999 

The House just passed the bailout pork bill, which I liked better before it turned into a Christmas tree festooned with ham. Somehow, this article from the September 30, 1999 issue of the New York Times seems germane (bold emphasis added):

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 [and advisor to presidential candidate of the future Barack Obama - ed.]. ''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.''

"Just a notch below" turned into a notch too far.

And it is not as though we were not warned:
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.''

Imagine what Peter Wallison could do with an actual crystal ball!

Feel free to click on "permalink" below and send this post to any mainstream media journalists you happen to know. Or Democrats. Either way.

And apologies to those of you who have seen this already. It was new to me.

CWCID: A reader who, by the way, has the same name as a famous rock band from my high school years.


By Anonymous Anonymous, at Fri Oct 03, 02:03:00 PM:

Hurrah! The bailout has passed! Now we will have prosperity in perpetuity. Let's all sing a chorus of Happy Days Are Here Again. FDR would be pleased.  

By Anonymous Anonymous, at Fri Oct 03, 02:32:00 PM:

Hilariously, the NYSE had "The Sun Will Come Out Tomorrow" playing just now on the floor. If only.

BTW, while I'm no fan of Bill O'Reilly, his verbal assault on Barney Frank was a delight to watch. I can only hope more go after him, as well as Shumer and Dodd. Too bad O'Reilly hadn't read or interviewed Wallison before the Frank set-to, or it would have been much longer and detailed.  

By Blogger Elise, at Fri Oct 03, 07:56:00 PM:

In TH’s recent post, “The financial crisis in plain English”, one of the commenters recommended Peter Wallinson’s article article on GSEs. My husband read it and summed it up this way:

Looks like Fannie was a shell company for the Federal government, just like those used by Enron to get bad debt off their books.  

By Anonymous Anonymous, at Fri Oct 03, 08:18:00 PM:

Speaking of "notching": http://www.bloomberg.com/apps/news?pid=20601109&sid=ah839IWTLP9s&refer=home

There is plenty of blame to go around.  

By Anonymous Anonymous, at Fri Oct 03, 11:59:00 PM:

Oh yes, absolutely.  

By Anonymous Anonymous, at Sun Oct 05, 12:39:00 AM:

This article PROVES how it's BUSH's FAULT. He set it up before he was elected!  

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