1999 Times Prophecy: Bill Clinton, Franklin Raines & easy minority mortgages
by Kurt Schulzke on September 25, 2008
What’s the dirty little secret behind today’s mortgage meltdown? Mortgage lending affirmative action. A 1999 New York Times article outlines how the seeds of today’s banking crisis were sown, in large part, by the Clinton administration’s drive to “help” otherwise non-creditworthy minorities buy homes:
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.
Without government assistance, they could not have bought. And today, they can’t pay. Now, their lobbyists are working hard to get Congress to approve a bill that will give federal bankruptcy judges the power to “adjust” downward their mortgages balances, effectively taking property from tax-paying Americans and giving to individuals who can’t pay mortgages and probably don’t pay taxes either. I believe that everyone, from Clinton to Congress, were fully aware of exactly what might happen as a result of these bad investments in minority mortgages.
Some of them, like Barack Obama, were probably privately cheering the program because they knew that it would eventually mean that many of these borrowers would get into homes without paying for them.
More NYT excerpts:
As a government program 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.
As is so often the case, the government’s effort to “help” is causing more pain than gain — for everyone. Anyone know where to find Franklin Raines? I understand that he’s a Barack Obama economic adviser. Why has normally brash Bill Clinton been so understated — even statesmanlike — in response to this crisis? Because he knows, like few others, how it all began.
Full text at New York Times.
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