I’m sure there are many questions surrounding the origins of the the current economic crises facing our nation. An article featured in the New York Times on September 30, 1999, just might hold the answer to these questions. The article begins:
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.
It is clear that this “action” could very well be the genesis of the current crises but what led Fannie Mae’s decision to relax their requirements and qualifications for obtaining a mortgage?
The article illustrates how…
Fannie Mae was under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderage income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
Peter Wallison, a resident fellow at the American Enterprise Institute, echoed a sentiment commonly expressed by the Clinton Administration and many others during this time frame. He stated the following:
From the perspective of many people, including me, this is another thrift industry growing up around us, …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.
The article injects a racial element to the problem with the following closing statement:
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.