Quote:
Originally Posted by InformedConsent
The CRA is not the same as HUD mandates. The CRA is legislation, HUD mandates are dynamic regulations determined by the then current Presidential Administration.
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correct
Clinton chief(s) of HUD did it henry Cisneros and Andrew Cuomo in 1995-2000 causing the housing bubble/bust
Defending Home Turf From Attack; Fannie Mae Is Facing Assault By House Panel and Business Rivals
By RICHARD W. STEVENSON
Published: April 22,
2000
WASHINGTON, April 18— Fannie Mae, the giant company created by the government decades ago to help make mortgages available to home buyers, is no stranger to hardball politics or high-stakes finance, having established itself as a power to be reckoned with both in Washington and on Wall Street.
Shareholder owned but federally chartered, it is an odd hybrid that dominates the business of channeling money between lenders and Wall Street by buying mortgages and packaging them into securities.
Its chief executive, Franklin D. Raines, is a former White House budget director whose name has been floated by Vice President Al Gore's presidential campaign as a possibility for the No. 2 spot on the Democratic ticket, and its executives have close ties to both parties.
But the company's very size and influence have now put it in the middle of a firestorm. Together with several smaller government-chartered corporations, Fannie Mae could soon supplant the federal government as the benchmark for creditworthiness in the bond market, a possibility that has already set off emotional sparring between the company and the Treasury Department.
The sharp reaction in the bond market was in large part a function of
forecasts that Fannie Mae and the other such enterprises would within three years have more debt outstanding among investors and financial institutions than the United States Treasury.
Unlike Treasury debt, the debt issued by Fannie Mae and Freddie Mac to help finance mortgages is not backed by the full faith and credit of the United States government. But investors have long perceived that the government has made an unwritten commitment to treat Fannie Mae and Freddie Mac as too big to fail.
Although the implicit guarantee has not been tested -- and indeed is explicitly contradicted in the offering documents for the debt the companies sell -- it has nonetheless generally allowed Fannie Mae and Freddie Mac to borrow money at lower interest rates than any entity short of the government.
In an interview, Mr. Raines of Fannie Mae suggested that the Treasury Department's expression of interest in reconsidering the benefits and potential risks of government-sponsored enterprises was motivated by a combination of ideological opposition to government support for a company operating in the capital markets and a reluctance to give up the influence it exerts in the markets as the issuer of the benchmark security.
Government-sponsored enterprise debt also is counted as safer than traditional corporate debt by regulators when they assess the financial strength of banks.
As a result, many banks have made such debt a big part of their capital base, a situation that has left some regulators and members of Congress speculating about the implications for the financial system if Fannie Mae or Freddie Mac were to get into serious financial trouble.
Even as he stressed that Fannie Mae and Freddie Mac were healthy and profitable, Mr. Baker said that to ignore ''the potential impact of a misstep'' by one or both of the companies ''is to flirt with a potential disaster.''
Should the government-sponsored housing companies continue to grow unchecked in size and influence, Mr. Baker told the hearing, the government might ultimately find itself on the hook for a bailout that would be financed out of ''your constituent's wallet.''
Fannie Mae quickly responded that the comparison to a high-risk hedge fund was ''unfounded,'' and that the company exceeds all regulatory standards for financial strength.
Invoking the defense that his company has used successfully for years, David Jeffers, a spokesman for Fannie Mae, said that a proposal by Mr. Baker to tighten regulation of Fannie Mae and Freddie Mac ''is going nowhere because it is antihousing.''
Defending Home Turf From Attack - Fannie Mae Is Facing Assault By House Panel and Business Rivals - NYTimes.com
quite revealing from 2000...
-------------------------
125% Loan: Blessing Or Bane?
By JAY ROMANO
Published: July 13,
1997
RESPONDING to the seemingly insatiable demand by borrowers for ever more exotic forms of credit, some aggressive lenders have brought to market a rather unconventional mortgage product: the 125 percent loan.
With such a loan, homeowners -- even those with less-than-pristine credit -- can borrow up to 125 percent of the market value of their homes by pledging collateral that doesn't exist.
Lenders who make such loans say they are effective credit tools that can be used by homeowners to raise cash for unexpected expenditures, get out from under high-interest credit-card debt or pay for home improvements that will in turn increase the owner's equity.
''The underwriting criteria (from the government) are actually more flexible,'' Mr. Levy said. ''They allow more dinks on your credit and a more narrow spread between what you make and what you pay out.''
And that is just what concerns Mr. Bader of Skyscraper Mortgage.
''The person who couldn't qualify for an ordinary home equity loan at 8 percent is now borrowing even more money at 14 percent,'' Mr. Bader said, adding that anyone thinking about taking out such a loan should contemplate the following:
''What happens if you want to sell your property, and you find that what you owe is more than what your property is worth?''
125% Loan: Blessing Or Bane? - Page 3 - New York Times
before bush,, before the glass-stegal repeal
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U.S. Proposes Rules to Help House Buyers
Published: March 05,
2000
The federal government has proposed new rules that would make it easier for low-income house buyers to qualify for mortgage loans, a move intended to help blacks and other minorities buy houses.
The proposed rules from the Department of Housing and Urban Development would require two of the largest housing finance companies in the country,
Fannie Mae and Freddie Mac, to increase the percentages of overall loans that they offer to lower-income families from the current standard of 42 percent to 48 percent in 2000 and to 50 percent in 2001.
The companies would be required over the next 10 years to buy
$2.4 trillion in mortgages from banks and other lenders to assist the 28 million American families with low and moderate incomes. Many of those families are minorities, housing officials said.
''This rule will greatly expand the supply of affordable housing across the country,'' said
Housing Secretary Andrew M. Cuomo.
The companies(fannie/freddie) buy mortgages for homes and apartment buildings from banks, savings and loans and other mortgage lenders, and package and sell the loans to investors. When Freddie Mac and Fannie Mae buy mortgages from lenders, they provide the lenders with cash to issue new mortgages.
Under the higher goals,
the companies would buy an additional $488.3 billion in mortgages over the next 10 years for seven million more low- and moderate-income families. The new mortgages would be added to the $1.9 trillion in mortgages for about 21 million families that would have been helped by the current standards.
Mr. Cuomo said that Fannie Mae and Freddie Mac were cooperating with federal regulators on this issue. The Housing Department said it was reviewing fair-lending practices at Fannie Mae. The two companies can do more, Mr. Cuomo said, and that led to the elevated goals.
The requirements for mortgage purchases were last set in 1995. The goals were up for renewal this year, as required by Congress. The housing administration could have lowered the goals or have left them unchanged.
U.S. Proposes Rules to Help House Buyers - NYTimes.com (
U.S. Proposes Rules to Help House Buyers - NYTimes.com)
---------------------------hmmm all moved by Clinton and his 2 chiefs of hud henry Cisneros and Andrew coumo
this from 1999
Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30,
1999
.......... the
Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
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.
''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.
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.
see the words in bold....very telling
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hmmm not according to the NEW YORK TIMES in 1997
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Giving Credit Where Credit Was Denied
Published: June 08,
1997
Giving Credit Where Credit Was Denied - Page 3 - New York Times
............
Mr. Kent received what his lender, GFI Mortgage Bankers,
calls its ''no-doc product'' -- as in no documents needed.
''We've created new products for people who have glitches, hairy credit,'' said Abe Eisner, executive vice president of GFI.
''No-doc means all we need is your name, address and Social Security number, depending on your credit history.''
GFI is a barometer for the industry; its subprime lending currently represents about 25 percent of the company's business. Two years ago, it was 10 percent.
--snip-....
One measure of the expanding subprime market is the number of loans that have been packaged and sold as asset-backed securities -- meaning that investors buy shares in those resold loans and then reap the returns as the mortgages are paid off.
--snip--
According to Jay Siegel, a vice president at Moody's Investor Service:
''Subprime loans have exploded from $7 billion in 1992 to $37 billion in 1996 as a sector of the entire securitized conventional loan market.'' That $37 billion, Mr. Siegel said, represents 11 percent of all the conventional loans that were securitized in 1996, up from 1.4 percent in 1992.
But in the last five years, Mr. Hornblass said, ''the growth of the securitization market has meant that lenders sell their loans, in essence, to investors, and get funding at a cheaper rate.
''So, now when they have cheaper funds, they are able to charge borrowers less,'' he said. ''And the money cycle is faster.''
Even quasi-governmental agencies have primed the subprime pump. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have recently developed computerized underwriting systems that allow lenders to speedily and reliably evaluate an applicant's credit-worthiness. The loans rejected by the automated system are, by definition, subprime.
''In the past, if a loan was rejected by Fannie Mae or Freddie Mac, that was it,'' Mr. Hornblass said. ''They weren't touching that business.
''But now both agencies have set up arrangements with lending companies that buy those subprime loans coming through the automated systems. Freddie Mac and Fannie Mae take a fee, the loans get funneled to a lending company that's willing to buy them, package them and then sell the securities to investors.''
The agencies have also, for the first time, become guarantors of subprime loans. In fact, on May 21, Freddie Mac agreed to guarantee the securitization of $227.3 million in subprime loans originated by the First Union Home Equity Bank.
Several industry analysts point out that the trend toward subprime lending has been a boon to the nation's affordable housing movement.
''There are more subprime opportunities that dovetail well with C.R.A.-required lending,'' said Mr. Gumbinger.
C.R.A. is the Community Reinvestment Act, a law passed by Congress in 1977 to combat red-lining -- the systematic policy of banks to avoid making loans in poor communities. The law requires Federally regulated banks and savings and loans, but not mortgage banks, to ''help meet the credit needs of communities in which they are chartered.'' If one of those lenders applies to Federal regulatory agencies for a merger or a new charter, it must demonstrate that it has originated a sufficient number of loans in low- and moderate-income neighborhoods.
According to data provided by Douglas Duncan, a senior economist at the Mortgage Bankers Association of America, 19.2 percent of the nation's home loans in 1993 went to minority-group members. By 1995, that share had risen to 22.2 percent.
Across the country, hundreds of lenders -- from major banks to so-called ''mom-and-pop'' operations -- have moved into the affordable housing market, prompted by a network of community development groups that have pioneered the rehabilitation of swaths of poor neighborhoods
hmmmmmmmm
...In 1995, the Clinton Administration changed the law governing GSEs' mission -- the Community Reinvestment Act (CRA) -- to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks' lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank's lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods -- which involved reducing mortgage loan standards -- or face backlash from those organizations' private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions through Fannie Mae, the government controlled banks' mortgage lending activity rates.
As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae. Banks could even buy the mortgages back from Fannie Mae, with Fannie's payment guarantee, thereby eliminating the credit risk (as long as Fannie was government backed). Now, if the US federal government is behind Fannie - and the government has a perfect credit record - there is really little worry for banks, so they might as well make all the mortgages Fannie Mae is willing to buy, and purchase all the guaranteed debt Fannie puts up for sale. However, to the extent investors ever believed Fannie was just like any other company -- without the US government guaranteeing its debts, at least in bulk -- well that would be a different story. The risks involved would go from theoretically near zero, to well, who knows... Throughout the Congressional debate on GSE regulations in 2003-2005, senior Congressional Democrats repeatedly inferred -- even directly stated on at least one public occasion -- the US federal government would bail Fannie Mae out if required.
In written law, the US government only 100% guarantees Ginnie Mae. The other major two GSEs, Fannie Mae and Freddie Mac, exist in more of a grey area. Nothing explicitly states the federal government is 100% behind them, but it has always been implied. That is why statements of top government officials in the run up to the bubble are so very important, as are actions like the US President personally appointing Fannie's CEO and directors.
From 1993-1999, the Clinton Administration replaced many of Fannie Mae's key executives, including the CEO, the CEO's number two, and nearly half the board of directiors. As a government sponsored enterprise (GSE), the President had the authority to make those appointments. The board, which increasingly consisted of Presidential appointments, then worked with the new CEO to change Fannie Mae executives' salary structures in order to incentivize them to reach higher mortgage targets. More specifically, the board promised senior executive millions in bonuses each year as long as Fannie reported certain earnings figures. Just a quick reminder... Fannie's ability to reach earnings targets is directly related to the number of mortgages it buys, as long as those mortgages do not default or as long as Fannie executives do not recognize negative changes in the payment flow
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