How in the world did we get into such a mess anyway? First, there is a must read article from the New York Times, dated September 30, 1999. Here is that article.
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.
''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.
This action laid the mine field that would later, with the right kind of manipulation, erupt in the face of America and eventually in the face of the whole world. I believe that actions and words were used by key politicians to trigger the economical melt down. People are either responsible for their words or they are not.
The lifting of restrictions on Fannie Mae and Freddie Mac caused an explosion in home ownership by minorities and low income individuals. President Bush even made mention that more minorities owned their own homes than any time in history. After 9/11, the economy slowly but steadily started back. By the 2006 election the economy was rolling along, the numbers looked fair to good and we were doing fine. Unemployment was down and people were working.
Before 2006 there were a few politicians that were saying the economy was bad. But after the 2006 election and the Democrats took control of the House and the Senate, we started to get a steady diet of, "the economy is bad", even with good numbers. Why? I believe the answer is in the fact that an economy does well or poorly based on the confidence of the consumer. If you believe in the economy and trust it, you spend as your need demands. When people buy thing, factories have to make replacement merchandise, money is spread around and loans are paid on time every time and all is well. But, if you believe that the economy is in bad shape, you don't spend, factories don't make merchandise, money dries up and loans are not paid. Then you have layoffs, loan default and foreclosures. If you get a steady feeding of, "the economy is bad", the seeds are planted in the back of your mind waiting to be watered by some bad news. Remember this, if bad news comes and you have confidence in the economy, you recover from it a lot quicker than if you don't have confidence in it.
On the week of July 12, 2008, the bomb hit. Fannie and Freddie were close to collapse. I still believe if we could of maintained our confidence in the economy we would of gotten through it some how. We will never know now because of a certain Senator from New York. Senator Schumer, the senior Senator from that great state, went before the cameras and made a statement about Fannie and Freddie. He also named a very big bank by the name of Indy Mac that was in trouble. The next day there was a run on that bank and it failed.
If you want to cause a financial panic just mention a bank has had a run on it and has failed. And it was all over the media about Indy Mac. That seed in the back of the mind just got totally soaked and would grow into plant called, "no confidence" and it would grow quickly.
The 2008 election was won by the democrats. And on the 9th of November 2008, Rahm Emanual said, "you never want a serious crisis to go to waste." Along these same lines, on March 6, 2009, President Obama said, "never waste a good crisis."
There is no doubt that there is a financial crisis in this country. The banks are where the big problem seems to be. They are not lending money and are suffering from defaults. Now there is on the books at this time the government rule for how the banks do their accounting. That rule is call, "Mark to Market." I have heard it explained several times and I will make an effort to share how it came across to me.
If a bank has assets of ten cows, (I'm a farmer) and these cows are worth $1,000 a head. The banks assets are then $10,000. Now if the market value goes down to $800 per head then the bank has to adjust their assets on the books to $8,000. And they are then required by the government to make up the difference with cash so that they are back up to the $10,000 mark. The more the value of cattle drops the more the bank has to make up. They then get to the place where they have to sell some of their assets. The more cows that are sold the cheaper they become and the more money that is required to maintain the banks asset level. The more money the banks have to have the less they have to loan to businesses and home buyers. If they get to the point that their assets are none existent, they fail and government has to bail them out. Also the stock market takes a dim view of this kind of accounting during a financial crisis.
I have heard many economists say that President Obama could by executive order do away with Mark to market accounting, and start the climb out of the crisis. But he does not do it, why?
If the Democrats and Obama had won this past election with a good economy in place and they would of tried to put a bill through congress consisting of earmarks, pork and every pet project they could come up with in it. The people would not hold still for such foolish spending. But if you have a crisis on your hands you must move quickly to fix it. So we get these bailout/stimulus bills. They just so happen to have all the earmarks, pork and every pet project they could come up with attached to them.
And the people did nothing.
How much of this mess has been done deliberately?
The Old Farmer
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