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Fannie Mae Eases Credit To Aid Mortgage Lending




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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.









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The idea that a government can supervise all this - or not - for the last eight years and then wash their hands and say "oh, we inherited the mess" after it bursts - is that not slightly laughable? Who was administering during all that time?

Hoss;999882 wrote: I have no idea. All I know is that people were so blind by Bill Clinton, and I'm not surprised he had a hand in this too.

The fact that he tried to make sure that minorities got loans despite not being able to earn the qualifications for getting a loan is just wrong. It makes it a little bit unreasonable to me.

I'm white of no specific national back ground to change any of the rule adjustments, so the rules apply to me regularly.

To get a loan I need 10% down and the ability to pay it back and some collateral. To get a loan for a minority they need to be a minority, nothing down, no collateral, just make the payment.

Does that sound just? That’s foolishness.

I think all of them are to blame, but lets be specific and name names and point fingers and no let these people get back into office, or run another company and jail those who acted criminally and seize their assets and make them pay as much restitution as possible.


You can go FHA and only need 3.5% down actually.

Hoss;999882 wrote: I think all of them are to blame, but lets be specific and name names and point fingers and no let these people get back into office, or run another company and jail those who acted criminally and seize their assets and make them pay as much restitution as possible.


I'd go with that happily. You have an administration which set up cheaper mortgages for people who couldn't afford one, a year before they left office. It's turned into a bad idea. Then you have an administration which has sat in charge of the same scheme for the last eight years watching it increase by at least a hundredfold if not a thousand times, watching the terms and conditions get slacker and less tied to reality, the deals being given inflated values and sold on to every major bank on the planet. Finally it burns round the ears of the tax-payers who scream in outrage. Which administration are you going to hold more accountable?

spot;999912 wrote: I'd go with that happily. You have an administration which set up cheaper mortgages for people who couldn't afford one, a year before they left office. It's turned into a bad idea. Then you have an administration which has sat in charge of the same scheme for the last eight years watching it increase by at least a hundredfold if not a thousand times, watching the terms and conditions get slacker and less tied to reality, the deals being given inflated values and sold on to every major bank on the planet. Finally it burns round the ears of the tax-payers who scream in outrage. Which administration are you going to hold more accountable?


The present administration has been in a coma for the past eight years.

Lon;999918 wrote: The present administration has been in a coma for the past eight years.


No, the present administration has been mesmerised by military adventurism from the day it took office. The present administration is Perle and Wolfowitz and Rumsfeld and Cheney, the fact that some backed out when things went pear-shaped is immaterial. The present administration is a right-wing think-tank which got to the White House stuffed with chicken-hawks. You've spent eight years led by men who never experienced the horror of war because they wormed their way out of serving but they just love the idea that all that glistening oiled metal can steal the world for them. Who did they end up robbing? The tax payer. What a surprise.

spot;999929 wrote: No, the present administration has been mesmerised by military adventurism from the day it took office. The present administration is Perle and Wolfowitz and Rumsfeld and Cheney, the fact that some backed out when things went pear-shaped is immaterial. The present administration is a right-wing think-tank which got to the White House stuffed with chicken-hawks. You've spent eight years led by men who never experienced the horror of war because they wormed their way out of serving but they just love the idea that all that glistening oiled metal can steal the world for them. Who did they end up robbing? The tax payer. What a surprise.


The truth of the matter is that it was McCain and three GOP colleagues who sought to reform the government's lending policies three long years ago after the Bush administration had failed two years earlier. On May 25, 2006, McCain spoke on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005, and warned against the debacle we are now facing if it failed to pass.

Hoss;999960 wrote: More accountable?

I'm sorry; I don't get caught up in outrage. I think each man is accountable for everything they do, good or bad. You can't hold anyone more accountable over the other under those terms. Just divide it out and let each on take their portion of responsibility, either criminally or in reward for doing right. Let the rest fall where it does.
Then, as you say, lets be specific and name names and point fingers and not let these people get back into office. Perle and Wolfowitz and Rumsfeld and Cheney, all with their eye on fighting foreign wars and knowingly inventing lies to get the American public to allow it, while the economy disintegrated in bad debt they didn't bother to regulate.

Hoss;999988 wrote: I don't see any one of those names on the McCain/Palin ticket.


One wonders sometimes why the concept of the political party was ever invented in the first place.

Scrat;1000096 wrote: Doesn't matter, they become the worst scum in the world when they retire. Lobbyists.
"They" who?

Scrat;1000127 wrote: The politicians we give the pink slips too. A lot of them do anyway.
Oh, okay. I thought you meant old presidents.