Are the democrats to blame for the sub-prime failure?
Amazing foresight!! Take a gander at this while they try to lay blame for the whole meltdown…9 years ago—this one is priceless and worth the read- right out of New York Times
September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES 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 bor rower 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.
As a Realtor it is hard to even trust that a deal will close now-a-days with the lenders going out of business and leaving buyers stuck out at closing. This has been a terrible experience for me.
Here in Houston mortgage brokers and loan officers are hurting and some are even given up. As a Realtor I have other options but rearranging my structure and client base will take me a minute to start building back up.
It would be interesting to know how others in the real estate industry are doing these days.
As the mortgage shakeout forces dozens of home lenders into bankruptcy, some are merely going into something like suspended animation — shutting down temporarily and hoping to escape intact once the crisis has run its course.
Published 12:00 am PDT Sunday, August 26, 2007
The total volume of subprime loans nationally fell less than 4 percent in 2006, even as defaults and foreclosures were starting to spike, according to data compiled by Credit Suisse. Some big lenders never really did apply the brakes: New Century’s loan volume was down a mere 1.3 percent through the end of February, or about two weeks before trading in the company’s stock was suspended.
Published 12:00 am PDT Friday, August 24, 2007
Former branch manager Heather Fern-Luzzi, foreground, and Heidi Freiberg clean up as the Roseville office of First Magnus Financial Corp. shuts down. As lenders cut back because of a credit crunch and slack housing demand, 13,000 mortgage jobs disappeared nationwide in the past week.