While Democrats bluster about the nation’s financial meltdown and the President’s proposed bailout, remember that all their finger pointing is a desperate attempt to divert attention from their own responsibility at this crucial point in the election campaign. Where did all these sub-prime loans come from, anyway? Whose bright idea was that?
Frequent contributor Mike points to a September 30, 1999, New York Times article (Fannie Mae Eases Credit To Aid Mortgage Lending) that pinpoints the genesis of the current financial crisis and exposes why current Democratic finger pointing is aimed in the wrong direction:
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 [emphasis added] 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 sub-prime 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 [emphasis added*], 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.”…
*As recently as August 2008, Raines was identified as an economic adviser to the Obama campaign. He’s apparently now been pushed into the shadows. Good decision, but not soon enough to go unnoticed.
To be continued…