Let’s go back to an article in the New York Times written on September 30, 1999. I pulled a few interesting quotes and added my own emphasis.
I don’t like pointing fingers, but here’s the truth:
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.
Well, we all know greed was at the core of the problem. But what are the risks for providing loans to people who are more than likely not able to pay them back?
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.”
Sounds like a prophesy fulfilled.
Going back to greed, I’d be amiss if I were to say it was the only motivation for this proposal. It did in fact have a mask:
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
The intention is good, and I can understand it. But the method chosen was not a good solution. What is the price we’re paying for it? Apparently it’s over $700 billion.
HT to my brother Marc for sending the article.
