The role of the Clinton administration in the mortgage meltdown

[jonny]

This is an interesting article from 1999 someone forwarded me which traces the roots of the current mortgage crisis to some moves made by the Clinton administration. Thought it would be interesting to discuss:

Fannie Mae Eases Credit To Aid Mortgage Lending

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.

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.

Here's the complete article: Fannie Mae Eases Credit To Aid Mortgage Lending - New York Times

 

[jonny]

I guess the question now is, was it worth the risk to try and increase minority and low-income home ownership?

 

[angellous_evangellous]

So, Johnny, who was pressing who to do what?

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.

Subprime lending - Wikipedia, the free encyclopedia

 

[angellous_evangellous]

It seems to me that the article quite obviously points the blame directly on the greedy banks and the Republicans who pressed to deregulate them.

 

[jonny]

Where do you draw that conclusion from? I know that the Bush administration was pressing for more home loans to people who couldn't afford them in its early days also (I remember Bush bragging about the number of new low-income home buyers in one of his state of the union addresses). This article pre-dates the Bush administration though, so I'm thinking this was a concerted effort by both parties to expand lending.

I don't remember any mention of Republicans in the article, but I'll re-read it.

 

[jonny]

It seems to me that the article quite obviously points the blame directly on the greedy banks and the Republicans who pressed to deregulate them.

I re-read the article and couldn't find the obvious point you're referring to. It seems to be pointing the finger at the Clinton administration and the lenders. The subprime mortgages and mortgages to low-income borrowers go hand-in-hand from my perspective. Everyone wanted to make loans to people who couldn't afford homes.

 

[angellous_evangellous]

Where do you draw that conclusion from? I know that the Bush administration was pressing for more home loans to people who couldn't afford them in its early days also (I remember Bush bragging about the number of new low-income home buyers in one of his state of the union addresses). This article pre-dates the Bush administration though, so I'm thinking this was a concerted effort by both parties to expand lending.

I don't remember any mention of the Republican congress in the article, but I'll re-read it.

No mention of the Republican congress in your quote.

It says what Clinton did, which was try and help lower income people get loans, which is quite a different ball-game than what the banks did - pressure the government to de-regulate laws against subprime lending so that they can lend to people who not only can't pay BUT haven't. Clinton, it seems, wanted to help banks extend loans to people who were less desirable to banks but could pay for their loans.

It's quite easy to see the Clinton regulation and the Republican deregulation in all this mess. Clinton was seeking to regulate banks, giving incentive for them to lend to poorer people, and the Republicans sought to deregulate banks, allowing them to fleece America en masse.

 

[jonny]

No mention of the Republican congress in your quote.

It says what Clinton did, which was try and help lower income people get loans, which is quite a different ball-game than what the banks did - pressure the government to de-regulate laws against subprime lending so that they can lend to people who not only can't pay BUT haven't. Clinton, it seems, wanted to help banks extend loans to people who were less desirable to banks but could pay for their loans.

I understand what you're saying, but I still think both are related. There was pressure to extend more loans to lower-income people and the solution pushed forward by the banks was to lower the standards so more loans could be extended to more people.

 

[jonny]

It's quite easy to see the Clinton regulation and the Republican deregulation in all this mess. Clinton was seeking to regulate banks, giving incentive for them to lend to poorer people, and the Republicans sought to deregulate banks, allowing them to fleece America en masse.

You're going to have to outline it then. Could you point me towards the regulations that Clinton was trying to put into place?

 

[angellous_evangellous]

I understand what you're saying, but I still think both are related. There was pressure to extend more loans to lower-income people and the solution pushed forward by the banks was to lower the standards so more loans could be extended to more people.

But they are unrelated even in the article.

Clinton did X

Banks did Y

There is no connection whatsoever between the two, and indeed they are quite the opposite, because one creates new regulations, adding to what exists, and the other seeks anarchy.

 

[The Voice of Reason]

... and the other seeks anarchy.

... and gets it.

 

[jonny]

But they are unrelated even in the article.

Clinton did X

Banks did Y

There is no connection whatsoever between the two, and indeed they are quite the opposite, because one creates new regulations, adding to what exists, and the other seeks anarchy.

Honestly, you haven't done anything but state that over and over again. The article doesn't support your conclusion and you've provided no evidence to support it yourself. Sorry, but I don't know where you're going with this.

Show me what Clinton did to try increase regulations on the banks. That isn't in the article.