An interested reader sent this item to me.. written 9 years ago.
Subject: 9 Years Ago This Week – New York Times
Interesting Read…. September 30, 1999 Fannie Mae Eases Credit To Aid Mortgage Lending By STEVEN A. HOLMES In a move that could help increase home ownership rates amongminorities and low-income consumers, the Fannie Mae Corporation is easing thecredit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in15 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, hasbeen under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressurefrom stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies havebeen 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 conventionalloans. ''Fannie Mae has expanded home ownership for millions of families inthe 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 ourunderwriting 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 Maeis taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporationmay run into trouble in an economic downturn, prompting a governmentrescue 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 — arate that currently averages about 7.76 per cent. If the borrower makeshis or her monthly payments on time for two years, the one percentagepoint premium is dropped. Fannie Mae, the nation's biggest underwriter of home mortgages, doesnot lend money directly to consumers. Instead, it purchases loans thatbanks 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 toall potential borrowers who can qualify for a mortgage. But they addthat the move is intended in part to increase the number of minorityand low income home owners who tend to have worse credit ratings thannon-Hispanic whites. Home ownership has, in fact, exploded among minorities during theeconomic boom of the 1990's. The number of mortgages extended toHispanic 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 thatby the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfoliobe 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 isinvestigating allegations of racial discrimination in the automatedunderwriting systems used by Fannie Mae and Freddie Mac to determinethe credit-worthiness of credit applicants. The information contained herein is confidential and is intended solely for the addressee. Access by any other party is unauthorised without the express written permission of the sender. If you are not the intended recipient, please contact the sender either via the company switchboard on +1 212 969 2700, or via e-mail return. If you have received this e-mail in error or wish to read our e-mail disclaimer statement and monitoring policy, please refer to http://www.dresdnerkleinwort.com/disc/email/ or contact the sender.
