NY Times Article 9/30/99

[deacon blues]

By STEVEN A. HOLMES
Published: 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.

''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.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Just like 9/11, you can lay the root cause of this problem at the feet of the wonderful Clinton Administration!

If you think Bill was liberal, wait to see what Mr. Obama will do!

A vote for Obama is a vote for more failed social experiments that end up hurting us all in the end.

[JaneEyre]

Check out this YouTube video, Deacon Blues

http://www.youtube.com/watch?v=H5tZc8oH--o

[crakjak]

Originally Posted by JaneEyre

Check out this YouTube video, Deacon Blues

http://www.youtube.com/watch?v=H5tZc8oH--o

Why does not John McCain use this info against Obama???

[SDG]

AND NOW THE REST OF THE STORY ....

Our present problem is rooted in bank de-regulation ... see THIS RECENT bailout ... and recent bank failures ...


--------------------------------------------------

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted 1999-11-12, is an Act of the United States Congress which repealed part of the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.


The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services. Other major mergers in the financial sector had already taken place such as the Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation combination in the mid-1990s. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process [1]. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.

Congressional history of the Act

The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA) and Thomas Bliley (R-VA). The bills were passed by a 54-44 vote largely along party lines with Republican support in the Senate[1] and by a 343-86 vote in the House of Representatives[2]. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns.[3]
The final bipartisan bill resolving the differences was passed in the Senate and was signed into law by President Bill Clinton on November 12, 1999. [4]


The banking industry had been seeking the repeal of Glass-Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.[5]

Critics

Economist Robert Kuttner (among others) has criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[8] Economists Robert Ekelund and Mark Thornton have made similar criticisms, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly". [9]

Source: Wiki


-----------------------------------------------------------

Guess who voted for it? Yep .... You guessed it.

THAT'S WHY CRAKJAK.


Don't forget we "bailed out" ... Freddie Mac and Fannie Mae already ....
Old news.

Housing and Economic Recovery Act of 2008


The Housing and Economic Recovery Act of 2008 included six separate major acts designed to restore confidence in the domestic mortgage industry.[136] The Act included:

• Providing insurance for $300 billion in mortgages estimated to assist 400,000 homeowners.
• Establishing a new regulator to ensure the safe and sound operation of the GSE's (Fannie Mae and Freddie Mac) and Federal Home Loan banks.
• Raises the dollar limit of the mortgages the government sponsored enterprises (GSE)'s can purchase.
• Provides loans for the refinancing of mortgages to owner-occupants at risk of foreclosure. The original lender or investor reduces the amount of the original mortgage (typically taking a significant loss) and the homeowner shares any future appreciation with the Federal Housing Administration. The new loans must be 30-year fixed loans.
• Enhancements to mortgage disclosures.
• Community assistance to help local governments buy and renovate foreclosed properties.

[SDG]

A blog by a fiscal conservative .... that gives us some more history .... and reality ... from this perspective:.

----------------------------------------------------------------
John McCain's lying is contagious - The Wall Street Journal just caught it.

by AndreNeil

Tue Sep 16, 2008 at 07:07:42 PM PDT

It was inevitable. James Taranto of WSJ knows that the current market crisis is an albatross around John McCain's neck. Today, he tried his best to deflect attention to the Democratic Party's vote on a bill which lies at the nucleus of Wall Street's bloodletting - naming Joe Biden and Harry Reid as having supported that bill, and exonerating John McCain.


Problem is, he is lying. Follow me across the fold and I'll explain.

• AndreNeil's diary :: ::

Forewarning: I work in the financial industry, and am partial to fiscal conservatism. However, I hate being lied to, and I don't exactly have a soft spot in my heart for liars - especially those who work in or around my field of business. Proving my honesty to the general public is difficult enough as it is, without partisan clowns and snake-oil salesmen tilting the odds against me. So thanks very much, James Taranto. You just goaded me - a fiscal conservative - into posting my first DailyKos diary.



Idiot.


Anyhoo, on to the story.



You probably recognize this man.



That's Phil Gramm. The man who believes America to be a "nation of whiners." The man who introduced the Gramm-Leach-Bliley Act to the Republican-dominated US Senate, and enabled its passage in the Senate, on the 6th of May, 1999. Remember that date.


Today, Harry Reid tore a strip out of Gramm and that radioactive bill, blaming it for the current market crisis:

Senate Majority Leader Harry Reid (D-Nev.) picked up on that line during a scathing floor speech Tuesday morning that compared Sen. McCain's (R-Ariz.) approach to the economy with that of the Hoover administration. In his speech, Reid blasted the Republican candidate's decision to choose Gramm as a top economic adviser.


"The same Phil Gramm who, as a senator, was responsible for deregulation in the financial services industries that paved the way for much of this crisis to occur," Reid said. "It was Phil Gramm who pushed legislation through a Republican Senate that allowed firms like Enron to avoid regulation and destroy the life savings of its employees, and it was Phil Gramm’s legislation that now allows Wall Street traders to bid up the price of oil, leaving us to pay the bill."

Reid is correct. Gramm-Leach-Bliley effectively repealed the second Glass-Steagall Act which, among other things, barred investment banks and retail banks from merging. Gramm-Leach-Bliley effectively removed this restriction, allowing a single institution to both create a debt-based investment, and then facilitate its sale. Previously, with two institutions involved in that process (Three if you count the investment rating company - Moody's for example), there would have to be a high degree of clarity involved. One institution (Investment bank) wouldn't just buy, repackage, and re-sell another institution's (Retail bank) products without first understanding exactly what it was. It would also be far less likely to hold those assets and count them as capital.


With a single institution operating on both the commercial and investment banking fronts, the motive for clarity was eliminated.


Well, given that Reid is the Republican Party's favourite piñata, given that he squeals so well when the phrase "Do Nothing Congress" is tied to his name, one would naturally expect some blowback for that statement. James Taranto, of the Wall Street Journal, wasted no time:

Given those highly impolitic remarks, you can hardly blame Democrats for wanting to remind people about Gramm. But this particular line of attack is a bit problematic. As an unnamed McCain aide points out to the Hill, the chief House co-sponsor of the bill, then-Rep. Jim Leach of Iowa, is a co-founder of Republicans for Obama. If he has had second thoughts about banking deregulation, he did not mention them in his Democratic Convention speech.


In the Senate, Gramm-Leach-Bliley passed by a vote of 90-8 before being signed into law by President Bill Clinton, a Democrat. Among those voting "aye" were Scathing Sen. Harry Reid and Sen. Joe Biden, Barack Obama's running mate. John McCain was absent, off campaigning for the 2000 New Hampshire primary.

Two items of note.

1. This is the page that Taranto linked to in that first bold quote (90-8) as evidence of who did and did not vote for passage of the bill.

1. Using the roll call from that linked page, he says "John McCain was absent"

Problem is, that page is not a transcript of the roll call vote for the bill. This is. It took place on May 6, 1999. The page that Taranto linked to was a vote on the conference report, which took place 6 months after the bill had already passed in the senate, and just over a week before it was signed into law. The bill was not passed 90-8; it was passed 54-44, almost strictly down party lines (The lone Democrat to vote for the bill was Ernest Hollings of South Carolina).


This is the roll call from the actual Senate vote:

Abraham (R-MI), Yea
Akaka (D-HI), Nay
Allard (R-CO), Yea
Ashcroft (R-MO), Yea
Baucus (D-MT), Nay
Bayh (D-IN), Nay
Bennett (R-UT), Yea

Biden (D-DE), Nay

Bingaman (D-NM), Nay
Bond (R-MO), Yea
Boxer (D-CA), Nay
Breaux (D-LA), Nay
Brownback (R-KS), Yea
Bryan (D-NV), Nay
Bunning (R-KY), Yea
Burns (R-MT), Yea
Byrd (D-WV), Nay
Campbell (R-CO), Yea
Chafee, J. (R-RI), Yea
Cleland (D-GA), Nay
Cochran (R-MS), Yea
Collins (R-ME), Yea
Conrad (D-ND), Nay
Coverdell (R-GA), Yea
Craig (R-ID), Yea
Crapo (R-ID), Yea
Daschle (D-SD), Nay
DeWine (R-OH), Yea
Dodd (D-CT), Nay
Domenici (R-NM), Yea
Dorgan (D-ND), Nay
Durbin (D-IL), Nay
Edwards (D-NC), Nay
Enzi (R-WY), Yea
Feingold (D-WI), Nay
Feinstein (D-CA), Nay
Fitzgerald (R-IL), Present
Frist (R-TN), Yea
Gorton (R-WA), Yea
Graham (D-FL), Nay
Gramm (R-TX), Yea
Grams (R-MN), Yea
Grassley (R-IA), Yea
Gregg (R-NH), Yea
Hagel (R-NE), Yea
Harkin (D-IA), Nay
Hatch (R-UT), Yea
Helms (R-NC), Yea
Hollings (D-SC), Yea
Hutchinson (R-AR), Yea
Hutchison (R-TX), Yea
Inhofe (R-OK), Not Voting
Inouye (D-HI), Nay
Jeffords (R-VT), Yea
Johnson (D-SD), Nay
Kennedy (D-MA), Nay
Kerrey (D-NE), Nay
Kerry (D-MA), Nay
Kohl (D-WI), Nay
Kyl (R-AZ), Yea
Landrieu (D-LA), Nay
Lautenberg (D-NJ), Nay
Leahy (D-VT), Nay
Levin (D-MI), Nay
Lieberman (D-CT), Nay
Lincoln (D-AR), Nay
Lott (R-MS), Yea
Lugar (R-IN), Yea
Mack (R-FL), Yea

McCain (R-AZ), Yea

McConnell (R-KY), Yea
Mikulski (D-MD), Nay
Moynihan (D-NY), Nay
Murkowski (R-AK), Yea
Murray (D-WA), Nay
Nickles (R-OK), Yea
Reed (D-RI), Nay

Reid (D-NV), Nay

Robb (D-VA), Nay
Roberts (R-KS), Yea
Rockefeller (D-WV), Nay
Roth (R-DE), Yea
Santorum (R-PA), Yea
Sarbanes (D-MD), Nay
Schumer (D-NY), Nay
Sessions (R-AL), Yea
Shelby (R-AL), Yea
Smith (R-NH), Yea
Smith (R-OR), Yea
Snowe (R-ME), Yea
Specter (R-PA), Yea
Stevens (R-AK), Yea
Thomas (R-WY), Yea
Thompson (R-TN), Yea
Thurmond (R-SC), Yea
Torricelli (D-NJ), Nay
Voinovich (R-OH), Yea
Warner (R-VA), Yea
Wellstone (D-MN), Nay
Wyden (D-OR), Nay

Just so we're clear here - Biden and Reid voted against that bill. McCain was, in fact, present for the vote.


He voted for it.


A simple Google search of "Gramm-Leach-Bliley Act" would lead, within two clicks, to the correct link that I provided above. Those two clicks would yield both the correct date of the bill, and the Senate roll call. To find that conference report roll call actually took some digging, and I'm just not going to give Taranto the benefit of the doubt that this was an honest mistake. He pulled a simple bait-and-switch, hoping no one would notice.


James Taranto is a liar. The Wall Street Journal just allowed one of its staff to perpetuate a blatant lie on its behalf.


I thought you should all know that.

[SDG]

Some would like to tell you this is about some bad loans that came due that some low income to mid income Hispanics and Blacks took out because of a entitlement minded Communist Clinton... forgetting that "bailout" of those gov't controlled corporate entities already happened ... this present one deals w/ the banking, credit and financial markets .....

This financial crisis has many layers and dynamics to it ...

Its INTER-RELATED causes are rooted in many areas ... that have to come to a head .... including sub-prime mortgages, government de-regulation policies, croniysm, greed, mortgage-backed securities and securitization practices, etc. etc. etc.

Causes that can be traced to bad decisions made by legislators on BOTH SIDES OF THE AISLE .... MULTIPLE ADMINISTRATIONS AND THEIR AGENCIES .... heads of corporations and banks, investors and consumers ....

Please inform yourself and do not rely on TALK RADIO ... or Pastor Sean Hannity to give you the full picture .... or any forum that may be leaning towards a candidate because they think it is their spiritual civic duty to do so ...

This is a link that lists that many causes and history of the mess we AS A NATION ARE IN .... THAT DEALS W/ THE SUB-PRIME MORTGAGE AND FINANCIAL BANKING CRISIS WE ARE IN ...

http://en.wikipedia.org/wiki/2007_su...nancial_crisis


Please stop the campaign of fear, smear and half-truths.

We don't need a career-politician ... we can't afford it.

[Elizabeth]

By STEVEN A. HOLMES
Published: 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.

''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.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

This is exactly what happened-

I know it's true because I live 2 hours from the most expensive real-estate in the US- and I lived in a bedroom community that houses were selling at one time around 800,000 $ at the top of the market.(Now they are worth around 300,000 max)

These houses sold to SF bay area people looking for more house for the money-

Having a relative who has been a realtor for 30 years and an a mortgage broker at one time said-- and listen carefully-


Many loans were fraudulently made, with those with little to no and very bad credit -false information was given so people could receive a loan-
Not only that but many received adjustable rate loans that made their payments go up.


The neighborhood I lived in when the market started to go down, became a ghost town people just moved out, stopped paying their mortgage they could no longer afford, along with a house that was not worth half of what they paid for-there were so many many NEW empty houses.

This event caused some of the financial problems we are having today- to think that the over production of houses with faulty loans to people who could not afford them-then thousands(if not millions) of people walking away from these homes did not affect the ecomony???? Hello-

[Brother Price]

For some, Democrats never do wrong. For the rest of us, we know they do no right.

[SDG]

Originally Posted by Brother Price

For some, Democrats never do wrong. For the rest of us, we know they do no right.

Two mortgage fraud bills(just one of the many dymanics to this) were introduced by Democrats DURING THIS ADMINISTRATION... one (the latter listed belowed) sponsored/authored by Barak Obama ....

IT WAS SHUT DOWN BY REPUBLICANS ....

Senate 2280: Mortgage fraud bill

http://goliath.ecnext.com/coms2/gi_0....html#abstract

and

Senate 1222: Stop Fraud Act, To stop mortgage transactions which operate to promote fraud, risk, abuse, and under-development, and for other purposes.

http://www.govtrack.us/congress/bill.xpd?bill=s110-1222


This is a long time coming with a enough blame to spread around ....

That doesn't include the cronyism by the present SEC chairman of this administration.

Some complain about "social experiments" only to not realize the money now in the trillions being thrown about in this administration to bailout company after company....

Senator Jim Bunning, Republican of Kentucky, who on Tuesday, in front of Treasury Secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke, labeled the Paulson/Bernanke $700 billion Wall Street takeover plan “financial socialism.” He also called it “un-American".

Beams in a lot of eyes right now .... AND MORE SOCIAL EXPERIMENTS IT SEEMS

We'll find out in November who they trust to turn this around.

[rgcraig]

Community Reinvestment Act

Original Act
The CRA was passed into law by the 95th United States Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[1] Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.[2] The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB).

The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market.[3] Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.[4]

Clinton Administration Changes of 1995
In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs.

These revisions[5] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.[citation needed]

Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The first public securitization of CRA loans started in 1997 by Bear Stearns. [6] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. [7] [8]

Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market. [9]


George W. Bush Administration Proposed Changes of 2003
In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank (D-MA) claimed of the thrifts "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Mel Watt (D-NC) added "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing."[10]

From Wikipedia, the free encyclopedia