Guests - If You want access to member only forums on HSO. You will gain access only when you sign-in or Sign-Up on HotSpotOutdoors.

It's easy - LOOK UPPER right menu.

Sign in to follow this  
Followers 0
dartsportsteve

Fannie Mae: We all should have seen it coming.

29 posts in this topic

This is from the NY Times in 1999.

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

Published: 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.

Share this post


Link to post
Share on other sites

The hindsight comment is about acknowleding the water under the bridge smile

We see it's correct now. Thats hindsight.

Share this post


Link to post
Share on other sites

Coulda, shoulda, woulda. I would have done a lot of things different if I could go back to 1999. Maybe we should learn from this and start paying more attention.

Share this post


Link to post
Share on other sites

The hindsight comment is about acknowleding the water under the bridge smile

We see it's correct now. Thats hindsight.

All I can do is laugh. laugh

All the people that bought the "great depression" sell-out.

What now ? The "great dust bowl" will return ??

Read on, the "Great Sell-out" has only opened a pandora's box.

"California may need an emergency loan of up to $7 billion from the federal government within weeks, the Los Angeles Times on Friday quoted Gov. Arnold Schwarzenegger as saying in a letter to U.S. Treasury Secretary Henry Paulson."

Hurry, hurry I feel the credit tightening ! cry

Share this post


Link to post
Share on other sites

Sparce,

I mailed mine yesterday. grin

I'm going to start filling out all those credit card apps I get and max each one out and throw my debit into the pile. They'll never even notice it. whistle

Share this post


Link to post
Share on other sites

I'm going to start filling out all those credit card apps I get and max each one out and throw my debit into the pile. They'll never even notice it. whistle

I can see it now.....as the next bailout. People will start racking up loads and loads of maxed out credit cards(yes, even more than now) and everyone will start filing for bankruptcy and then the government will bail out joe smoe and say it was PREYING on people by the credit card companies. People with XXXXX amount of credit card debt will be forgiven or they interest rates will be moved to 0%......... Someone write down the time and date, I want credit for my foresight.

Share this post


Link to post
Share on other sites

Originally Posted By: MNmikew

I'm going to start filling out all those credit card apps I get and max each one out and throw my debit into the pile. They'll never even notice it. whistle

I can see it now.....as the next bailout. People will start racking up loads and loads of maxed out credit cards(yes, even more than now) and everyone will start filing for bankruptcy and then the government will bail out joe smoe and say it was PREYING on people by the credit card companies. People with XXXXX amount of credit card debt will be forgiven or they interest rates will be moved to 0%......... Someone write down the time and date, I want credit for my foresight.

Biden did say this last night in the debate... crazy

When asked about bankruptcy law and mortgage-holders, Biden — after explaining away the fact the he and Barack Obama voted differently on the last bankruptcy bill — said, “we should be allowing bankruptcy courts to be able to re-adjust not just the interest rate you’re paying on your mortgage to be able to stay in your home, but be able to adjust the principal that you owe . . . That would keep people in their homes, actually help banks by keeping it from going under. But John McCain, as I understand it — I’m not sure of this, but I believe John McCain and the governor don’t support that.”

Share this post


Link to post
Share on other sites

So in other words lets just give everyone an extra 20 grand in equity? Oh, unless you make over $250k cause you deserve nothing you commy rich guy. Yep, that's a great plan, keep 'em coming. The Dems are a freak show.

Share this post


Link to post
Share on other sites

At first glance and maybe at every glance, Biden's suggestion reaks of communism or socialism.

But Riddle me this Batman:

If a bank makes a loan of $200K on a property appraised at $240K and that property is now worth $160K, is it better for the bank to get a payment commensurate with a $180K in value or go through the cost of foreclosure, including the months needed to get the borrower out of the house, the money to clean it up, clear the tax lien etc.

Shouldn't the holder of that note have the ability to make that decision based on the future risk of carrying the note at a reduced amount or lower interest rate for that particular borrower and the current market to dispose of the asset? Under current bankruptcy law, the answer is no.

The bailout plan takes a slightly different tack. The government is paying a reduced cost,(supposedly), for the note and the assets that it was collateralized against. We are being told that the taxpayer may actually come out ahead as the economy improves and the value of those collateralized assets return to "normal". The risk we are covering is the lenders. Yet the underlying risk of the borrower defaulting remains unchanged at a micro level.

Neither are ideal choices, and both are hampered by trying to calculate what the present and future value is of the asset, but I have more faith that having the option to keep borrowers paying on the collateralized asset that they live in makes more economic sense than underwriting the risk to the mortgage holder and doing nothing to address the default risk of the borrower that the taxpayer is now on the hook for.

Share this post


Link to post
Share on other sites

October 06, 2008: 12:49 PM EST

NEW YORK (Associated Press) - Facing a lawsuit over deceptive mortgage practices, Bank of America Corp. is agreeing to pay more than $8 billion to modify hundreds of thousands of loans to keep people from losing their homes.

Charlotte, N.C.-based Bank of America said Monday it will modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 customers of Countrywide Financial Corp., the troubled mortgage lender it acquired last summer.

The announcement arrived after the Illinois attorney general's office said Sunday that the bank was modifying loans for customers in 11 states.

Some borrowers stuck with Countrywide customers might qualify for having to pay nothing but interest for a decade. Even people who can't afford to keep their homes with such changes will be able to get help moving to a new home.

"This is going to provide a tremendous amount of relief," said Illinois Attorney General Lisa Madigan.

Her office and officials from California negotiated the settlement; Illinois and California sued Countrywide earlier this year. Nine other states have also joined the settlement, and other states could sign on, said Deborah Hagan, chief of Madigan's Consumer Protection Division.

In California alone, the settlement will offer $3.5 billion in relief. For Illinois, that would translate to $190 million.

"Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford," California Attorney General Jerry Brown Jr. said in a statement Sunday.

The other states joining the settlement are Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

Bank of America said it will launch the new mortgage aid program in December.

In a statement, Barbara Desoer, president of Bank of America's mortgage, home equity and insurance services, called the plan "a comprehensive program that provides more solutions than ever before to assist troubled borrowers and put them back on the path to sustained home ownership."

The mortgage aid includes revising customers' payments so they don't exceed 34 percent of income. Other options include reducing interest rates and adjusting principal so that borrowers don't wind up actually losing equity under some payment plans.

Countrywide will not charge loan modification fees and will waive prepayment penalties.

Madigan said she hopes the settlement could serve as a model for steps that other lenders could take to make up for misleading mortgage practices. She stressed that the agreement involves no tax money but will help people keep their homes and keep money flowing to lenders

"This settlement will help homeowners stay in their homes, which ultimately helps investors and also helps communities," said Madigan, a Chicago Democrat.

Share this post


Link to post
Share on other sites

So... I have a mortgage with Countrywide and work my butt off to pay the bill on time, every month. When do I get my pricipal correction?

Lets go ahead and reward those who underperform. Nice.

Share this post


Link to post
Share on other sites

So... I have a mortgage with Countrywide and work my butt off to pay the bill on time, every month. When do I get my pricipal correction?

Lets go ahead and reward those who underperform. Nice.

I'm guessing your mortgage is fixed.

I think what you are seeing is a lender that realizes it makes more sense to adjust the terms of these notes so that they are receiving payments instead of pursuing foreclosure proceedings in a distressed market and incurring the costs of litigation.

I must have missed the part where Countrywide or the borrowers had a gun to their heads when they agreed to the loan.

Share this post


Link to post
Share on other sites

In the same boat Dart. You get nothing for being responsible. It's those that abuse that get the rewards. Pretty sad huh?

Share this post


Link to post
Share on other sites

Yup. Fixed 30 year. I educated myself before signing... novel idea.

In the same boat Dart. You get nothing for being responsible. It's those that abuse that get the rewards. Pretty sad huh?

Bingo. Give the drunks another drink... That'll fix it. Not just in reference to the borrowers either.

Share this post


Link to post
Share on other sites

In the same boat Dart. You get nothing for being responsible. It's those that abuse that get the rewards. Pretty sad huh?

Who's rewarded here? Both parties agreed to a business deal that isn't working for either of them.

Let them foreclose? Why do you think your 401K looks so bad lately? Why do you think we just dumped another Trillion in bailing these jokers out? There were a lot of bad loans made. If the borrower doesn't get the loan, none of this happens. If the bank goes to foreclosure it accelerates the cycle.

Share this post


Link to post
Share on other sites

I recently place last in a golf tournament, and received five dollars less of a prize than the tournament winner....

GOD BLESS LIBERAL AMERICA!

Share this post


Link to post
Share on other sites

Quote:
If the bank goes to foreclosure it accelerates the cycle.

It would also accelerate the healing process. This bailout is not going to fix anything it is only going to put a skimpy bandaid on a gushing wound. We are not going after the problem only the symptoms. At best it will only mask the symptoms for a short period of time before this crops up again. It is like taking aspirin for a bullet wound to the head.

Share this post


Link to post
Share on other sites

I agree with you on the bailout but disagree on the option to restructure a loan. The four biggest reasons are:

1. It's up to the lender, not the government.

2. Foreclosures help no one.

3. It doesn't cost the tax payer more money to take the assets off the bank's hands.

4. Finally, it's one less distressed property on the market bringing down everyone else's property values.

Share this post


Link to post
Share on other sites

Quote:
4. Finally, it's one less distressed property on the market bringing down everyone else's property values.

Property values went up abnormally fast and needed this to get back to where they belong. Normal growth is slightly higher than inflation, and we know that it basically doubled the rate of inflation for the last 10 or so years. I do feel a bit sorry for those that bought houses that with artificially high prices, but the housing market does need to correct itself.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.
Sign in to follow this  
Followers 0