[Congressional Record Volume 154, Number 156 (Sunday, September 28, 2008)]
[Extensions of Remarks]
[Pages E2116-E2117]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    PREDICTION OF A FINANCIAL CRISIS

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                            HON. JOE WILSON

                           of south carolina

                    in the house of representatives

                      Saturday, September 27, 2008

  Mr. WILSON of South Carolina. Madam Speaker, as our Nation faces a 
financial crisis, I wish to submit the following article, ``Fannie Mae 
Eases Credit To Aid Mortgage Lending,'' published in The New York Times 
on September 30, 1999. Special recognition should be given to those who 
recognized early on the dangers inherent in easing credit requirements 
for housing loans--including Peter Wallison of the American Enterprise 
Institute.

            Fannie Mae Eases Credit To Aid Mortgage Lending

                         (By Steven A. Holmes)

       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

[[Page E2117]]

     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.

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