Quote of the Day
From this House of Eratosthenes post, Party Like it’s 1999 wherein there is a link to Neal Boortz who has a clipping from the Sept. 30, 1999 edition of the New York Times (Paper of Record, y’know) that says:
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.
Yes, boys and girls, Bubba gave us a real nice going-away present!
But that’s not the quote of the day. It’s just a setup. Continuing:
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.
Y’see, this is how the MARKET WORKS. If you’re a higher risk then the lender had better see a higher return on his risk, or you’re not worth the risk.
But Fannie Mae (and Freddie Mac) removed the risk (so everyone thought). As Franklin Delano Raines famously said in House testimony, “These loans are almost riskless!”
And who doesn’t like free money?
But that wasn’t the QotD either. From the House of Eratosthenes piece, here is your QotD:
If the cause-and-effect is still a mystery to you . . . well then, you just might be a liberal democrat.
Following close on its heels is this from that same NYT piece – a bit of, shall we say, foreshadowing?
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.”
Please do read the whole piece. It’s chock-full of crunchy goodness! Nine years to the day. Who’dathunkit?
Obviously George Bush is at fault for not Nipping. This. In. The. BUD!
Mr. Wallison published American Enterprise Institute paper on the topic of “Regulating Fannie Mae and Freddie Mac” in May of 2005 that you might also find interesting.
(*Ahem*) I hereby nominate Peter Wallison to the position of Secretary of the Treasury.