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Archive for the ‘Economics’ Category

Lest We Forget the Origins of “Toxic Assets”

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Ten years ago this article in the New York Times described what was then developing in Fannie Mae practices that led to the mortgage catastrophe we have today.  The article includes the following warning:

“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.”

Fannie Mae Eases Credit To Aid Mortgage Lending

Tuesday, September 30, 1999

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.

“Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, 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.”

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

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.”

Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
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.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

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.

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.


Written by polemicscat

March 23, 2009 at 10:15 am

Southern National Congress Denounces Stimulus Bill

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Southern National Congress Denounces “False Stimulus” Bill

Rome, GA; February 10, 2009. On behalf of the fourteen State Delegations to the Southern National Congress (SNC), the SNC Board of Governors announced today its strong opposition to the stimulus-and-bailout bills now making their way through the U.S. Congress.

We are deeply concerned about our fellow Southerners who have lost their jobs, their homes, or the value of their retirement accounts. We pledge ourselves to help wherever we can, and we encourage all Southerners to help relieve the suffering of the jobless and homeless.

However, no so-called “stimulus bills” solve our economy’s problems. In fact, more government pork-and-spending will make things worse. Government spending will impede a genuine recovery by further weakening the U.S. dollar and increasing the growing risk of hyper-inflation. Make no mistake, the two bills on the table are spending bills, pure and simple. They contain “so much pork that you’d think Jimmy Dean wrote them himself.”

President Obama said on Monday that America can no longer afford the old failed policies that got us into the mess. But that’s exactly what he proposes – the same old failed spending, gargantuan government debt, and phony money created by the Federal Reserve that brought us here.

Thomas Moore, SNC Chairman, noted, “This is classic Washington folly. In response to the crisis that the Federal Government itself created, it demands more of our money and more power over us. President Obama’s approach may create a temporary stimulus. But it will be a false one – in the same way a junkie gets a ‘stimulus’ when he shoots up with heroin. He may feel good for a little while, but he will eventually crash from this high and runs the very real risk of ultimately dying from his addiction.”

“The U.S. is also addicted – to a lethal mix of loose credit, runaway debt, and profligate spending. This is made possible by fiat money – money the Federal Reserve creates from nothing and backs with nothing. We denounced this practice at the First Congress on December 6, 2008, and we continue to abhor it.”

(See www.southernnationalcongress.org/resolutionsindex.shtml)

“Professional politicians who live by pandering to special interests and un-elected and unaccountable bureaucrats are simply unqualified to address the deepening economic meltdown. The current crisis was largely caused by these same people. We loathe putting our economic security and that of our families into the hands of these incompetents. If this continues, these people will obliterate the America most of us were born into. We are now clearly threatened by domestic, internal decisions which will ultimately destroy the country.”

The American people are sick of being plundered by Wall Street and Washington. Calls to Capitol Hill are reportedly running seven to one against the so-called stimulus package. Yet the Feds appear determined to produce a bill by the end of this week. Pat Hines, Board Member for South Carolina, reports, “70% of Americans nationally, and 90% of South Carolinians, are opposed to this and every so-called bail out bill so far, even though South Carolina’s unemployment rate is soaring. By continually ignoring the will of the people we can all now plainly see the basic disconnect between the national government and the governed. This government is broken and cannot be repaired.”

The SNC Board laments the absence of any effective opposition to the Obama crusade to socialize the U.S. economy. The Republicans were eager supporter of the $700 billion Bush-Paulson payoff to Wall Street back in October 2008 and now lack all credibility. Their formerly abandoned but newly discovered commitment to free enterprise convinces no one. Indeed, the critical votes to pass the Senate version of the monstrosity came from Republicans. Any effective opposition to the juggernaut of socialist spending bearing down on us must now come from us – the States and from the people. We must act for ourselves and our families.

This irresponsible legislation proves that career politicians of both parties have failed us; or worse, actively betrayed us. But the people still need representatives who will defend their interests. That’s why it’s up to citizen-leaders – folks like us – the delegates to the Southern National Congress, to step into the breach. When the stimulus bill brings about its inevitable havoc and destruction, remember who really spoke out for our benefit.

The Board of Governors of the Southern National Congress is the oversight body of the SNC and comprises one Member elected from each of the fourteen State Delegations. The Board is authorized to speak for the Congress when it is not in session.

More information about the SNC can be found on the website, www.southernnationalcongress.org, or by contacting the Chairman of the SNC Media Committee Jonathan Ingram, at jonathaningram@juno.com


Written by polemicscat

February 13, 2009 at 10:22 am