Archive 1999 – Fannie Mae Eases Credit To Aid Mortgage Lending

March 3, 2009 by · Leave a Comment
Filed under: Opinion 

My friend researched and found this article from the NY Times dated September, 30th 1999. After reading this, it is hard to not see how this would turn bad eventually with these “subprime” borrowers getting charged higher interest rates for their home loans.   By definition, if you are “subprime” you have bad credit, I would even assume that their employment might not be of the highest income so why would a lender to get around that risk, charge more interest?  Sounds like a losing game unless you had some way to not hold that toxic paper, which we all know now as “securitization”. Separating the lender from the borrower was the worst possible idea, with money being made in fees upfront, there was really no incentive to make good loans that a bank would traditionally hold on their balances sheet for the duration of the loan.

Archive Story:

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.

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