Fannie Mae Nine Years Later

September 30, 1999 from the New York Times,

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.

Bold is my emphasis,

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 eerily prophetic words,

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.

Almost makes you think they rewrote the article recently.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

Housing made up the bulk of wealth creation between 2000 and 2005.  Recently the only concern was gas prices and that isn’t even a blip on the radar for many.  Will the policies that we enacted for oil be forgotten as we deal with other issues?  Will those policies come back to bite us as our focus has moved on?

Maybe if these other issues hadn’t taken our attention we would have more easily seen what was looming in the housing market instead of heralding it as the savior for our faltering economy.  If Mr. Greenspan truly didn’t see this coming then how would the government prepare for it?

This rescue plan better be a true rescue plan for the citizens.  And if one stupid add-on happens to this bill, that lawmaker needs to caned in public.

And just in case you don’t look at comments, check out Jeff Kempe’s site, pointed out in the comments by Ron Ares, with a video with Congress asking for more regulations for Fannie Mae.