Subject: Fw: New York Times Article from 9 years ago
> To:
> Date: Saturday, October 11, 2008, 1:29 AM
> ---------- Forwarded Message ----------
> Below is an article by Steven Holmes that appeared in The
> New York Times nine years ago. It brings to mind one of my
> favorite quotes from P. J. O’Rourke, “Giving money and
> power to government is like giving whiskey and car keys to
> teenage boys.” ~
> 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.
> ### Rick Calhoun
> First Vice President
> Crews & Associates, Inc.
> First Security Center
> 521 President Clinton Avenue
> Suite 800
> Little Rock, AR 72201
> 501.978.7948 / 800.766.2000
> 501.907.4048 Fax 501.907.4048 |
