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.”
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260
I think this shows that most people in the financial world knew what was going to happen long before it happened. Those who were in charge though didn’t care. They just rode the wave and pocketed the cash while it happened. Everyone knew that it would end sometime, but hopefully it would end after the big wheels cashed their chips and paid off their beach houses in Maui. Of course, this isn’t the entire picture of the economy, but this is kind of what happened across the board. It’s the American way to live beyond Your means. Just look at pop culture… "pimp my ride" and "cribs" and the music videos… Everyone has to have luxury, whether they can afford it or not. And as long as people are buying banks will be lending until it culminates into something like this. Those at the top knew. Those in finance knew. If this kind of information had been put on MTV or torrented with the newest games or movies, it might have made a difference. The people who are reading the New York Times already knew, so I figure this made little difference. Nothing will stop extravagant spending. Not even financial crisis. We have to quit inhibiting this type of activity by giving unworthy people money that have no intentions of repaying it.
August 22nd, 2010 at 6:52 pm
I think this shows that most people in the financial world knew what was going to happen long before it happened. Those who were in charge though didn’t care. They just rode the wave and pocketed the cash while it happened. Everyone knew that it would end sometime, but hopefully it would end after the big wheels cashed their chips and paid off their beach houses in Maui. Of course, this isn’t the entire picture of the economy, but this is kind of what happened across the board. It’s the American way to live beyond Your means. Just look at pop culture… "pimp my ride" and "cribs" and the music videos… Everyone has to have luxury, whether they can afford it or not. And as long as people are buying banks will be lending until it culminates into something like this. Those at the top knew. Those in finance knew. If this kind of information had been put on MTV or torrented with the newest games or movies, it might have made a difference. The people who are reading the New York Times already knew, so I figure this made little difference. Nothing will stop extravagant spending. Not even financial crisis. We have to quit inhibiting this type of activity by giving unworthy people money that have no intentions of repaying it.
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