NY Times on the Economic Crisis

This is unbelievable. From the New York Times on September 30, 1999:

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. . .

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.” . . .

8 Responses to NY Times on the Economic Crisis

  1. Tyler October 3, 2008 at 9:04 am #

    I’m not sure what to think of all this. On the one hand, it’s clear that Fannie and Freddie were grossly irresponsible in the way they did business, which was made possible by a combination of greed, well-meaning politicians and “flush economic times.” However, when the economy is booming, is it hard to understand why some would want to extend the privilege of home ownership to those with a less-than-perfect credit score? Ann Coulter’s latest race-baiting tirade aside, you can’t blame people for wanting to own a home, even if the price of a decent one is out of their league.

    Furthermore, I have heard it said (sorry, don’t have a link) that defaults on owner-occupied home mortgages are only a fraction of the problem–most of the bad mortgages are commercial and investment properties.

    Predatory mortgage lenders have gotten a lot of bad press in recent times, as they should. But their business practices are/were hardly different from those of banks which lavishly give high-interest credit cards (practically begging their clients to take out expensive cash advances) and checking accounts to people who can’t control their spending. Most banks would not turn a profit without such people. The government are in the best position to put an end to this institutionalized usury.

    On this side of the credit crisis, there is no moral equivalence between cash-strapped would-be home owners, politicians who wanted (rightfully) to help them achieve their dream, and opportunitistic lenders who wanted to exploit that dream to fatten their wallets.

  2. Nathan October 3, 2008 at 10:00 am #

    I think it is understandable, but also potentially lethal to assume that the good times will continue to roll. However, one of the items that most of the media is keeping under the radar is that many of these subprime mortgages may have been going to illegal aliens.

    It is one thing for the government to attempt to assist citizens in purchasing a home, but it is something altogether different to allow illegals to get credit. Because when the economic downturn comes, they (illegals) will have no problem leaving US citizens holding the bag.

    Michelle Maulkin reported on this not too long ago.

    http://www.nypost.com/seven/09242008/postopinion/opedcolumnists/illegal_aliens__the_mortgage_mess_130482.htm

    While illegal immigration cannot be fully blamed for the crisis there is cause for concern.

    Notice also at the first Presidential Debate on Foreign Policy that nothing was said about Illegal Aliens being a Foreign Policy issue. We are being invaded and the two candidates are asleep at the wheel, assuming that this is not a Foreign Policy issue.

    I’m sure Mexico is relieved.

  3. Don October 3, 2008 at 12:14 pm #

    From http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-democrat-fingerprints-are-all-over-the-financial-crisis-949653.html

    Cynical students of the American political system will note that the biggest recipient of campaign contributions from the munificent duo of Fannie and Freddie over the past 20 years was one Christopher Dodd, Democrat Chairman of the Senate’s Banking Committee.

    Rather surprisingly, given that he has only been in the Senate for four of those years, the second biggest beneficiary was Barack Obama.

  4. Clifford Kvidahl October 3, 2008 at 4:46 pm #

    The way I see it, regardless of how the economy is doing if you cannot afford something you should not be given a loan to pay for it. One only knows to well that the economy is like a roller coaster; it may be booming today, but tomorrow it may collapse.

  5. Tyler October 3, 2008 at 7:46 pm #

    Nathan,

    It really is a dangerous game to wed people’s anger over plummeting mortgage values with their irrational fear of illegal immigration. It’s a game that might play well in certain political circles but is not particularly becoming within the Church.

    As I said above, despite the appalling number of defaults on owner-occupied housing, most of the so-called toxic mortgages have been commercial and investment properties. Any fraud that has occurred should be punished according to the law–but not simply because a small number of those engaging in fraud are illegal immigrants. The vast majority of the crooks in this deal are unquestionably American citizens.

  6. Matt October 4, 2008 at 8:57 am #

    What I don’t understand is why the McCain campaign isn’t capitalizing on the fact that over the past four years (at least) it was the Bush Administration and Republicans in Congress who pushed for reform of Fannie Mae and Freddie Mac, and Democrats who resisted the change. President Clinton has even mentioned this.

    http://www.youtube.com/watch?v=_MGT_cSi7Rs

    McCain seems content to keep talking about earmarks when the economy comes up, as if he didn’t just vote for a bailout package that included an extra $150 billion in pork.

  7. Lydia October 4, 2008 at 4:36 pm #

    http://www.youtube.com/watch?v=-bLFPjLaXPM

    Here is another C-Span video with Fannie Mae lauding Obama for his help

  8. Nathan October 6, 2008 at 10:06 am #

    Tyler,

    I am not sure what you mean by saying, “It really is a dangerous game to wed people’s anger over plummeting mortgage values with their irrational fear of illegal immigration. It’s a game that might play well in certain political circles but is not particularly becoming within the Church.”

    One, your assumption that people have an irrational fear of illegal immigration is a personal opinion. And you are certainly entitled to it. Secondly, your insinuation that illegal immigration concerns have no place withing the Church is also a personal statement. Personally, I don’t know that “the church” has taken a stand pro or con on illegal immigration. I do think the bible states pretty clearly that honesty is an appropriate choice of believers.

    However, you are certainly entitled to your own opinion of whether illegal immigrants should or should not have sanctuary in the US and/or in the church. Personally I do not.

    I was not attempting to place ultimate blame on anyone is this financial mess, but merely point out that any loan to an illegal immigrant is first, illegal in and of itself, and secondly, will have no chance of recouping monies should there be a default.

    While the vast majority of the “crooks” are Americans, it is the banking industry and the mortgage companies that were attempting to have it both ways by loaning money to Americans and illegals.

    My point was only to note that the illegal immigration issue spreads into all areas of the economy. And as Maulkin stated, has become a sizeable issue in some cities.

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