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So How Did We Get In A Mortgage Crisis

The headline from the article sums the cause up quite nicely,

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: Thursday, September 30, 1999

You really need to read the whole article but a few excerpts.

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.

Wow, who could have predicted that could turn out badly? Well I guess the NY Times did.

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.

The rest of the article is available here.

Certainly can’t say that we were not warned. And just in case you were wondering, who is to blame for our current woes?

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.

Somehow I doubt we have learned the lesson of our mistakes.

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