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RE: It was actually quite small. Wall Street greed and rampant
Posted on: August 20, 2017 at 17:19:26 CT
90Tiger STL
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Shortly thereafter, Fannie Mae, under Chairman Jim Johnson, made its first “trillion-dollar commitment” to increase financing for affordable housing. What this meant for the quality of the mortgages that Fannie–and later Freddie–would buy has not become clear until now.
On a parallel track was the Community Reinvestment Act. New CRA regulations in 1995 required banks to demonstrate that they were making mortgage loans to underserved communities, which inevitably included borrowers whose credit standing did not qualify them for a conventional mortgage loan.
To meet this new requirement, insured banks–like the GSEs–had to reduce the quality of the mortgages they would make or acquire. As the enforcers of CRA, the regulators themselves were co-opted into this process, approving lending practices that they would otherwise have scorned. The erosion of traditional mortgage standards had begun.
Shortly after these new mandates went into effect, the nation’s homeownership rate–which had remained at about 64% since 1982–began to rise, increasing 3.3% from 64.2% in 1994 to 67.5% in 2000 under President Clinton, and an additional 1.7% during the Bush administration, before declining in 2007 to 67.8%. There is no reasonable explanation for this sudden spurt, other than a major change in the standards for granting a mortgage or a large increase in the amount of low-cost funding available for mortgages. The data suggest that it was both.
On a parallel track was the Community Reinvestment Act. New CRA regulations in 1995 required banks to demonstrate that they were making mortgage loans to underserved communities, which inevitably included borrowers whose credit standing did not qualify them for a conventional mortgage loan.
To meet this new requirement, insured banks–like the GSEs–had to reduce the quality of the mortgages they would make or acquire. As the enforcers of CRA, the regulators themselves were co-opted into this process, approving lending practices that they would otherwise have scorned. The erosion of traditional mortgage standards had begun.
Shortly after these new mandates went into effect, the nation’s homeownership rate–which had remained at about 64% since 1982–began to rise, increasing 3.3% from 64.2% in 1994 to 67.5% in 2000 under President Clinton, and an additional 1.7% during the Bush administration, before declining in 2007 to 67.8%. There is no reasonable explanation for this sudden spurt, other than a major change in the standards for granting a mortgage or a large increase in the amount of low-cost funding available for mortgages. The data suggest that it was both.
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RE: It was actually quite small. Wall Street greed and rampant - 90Tiger MU - 8/20 17:19:26