Monday, October 13, 2008

NATION’S MORTGAGE CRISIS CREATED BY EASY CREDIT REQUIREMENTS

With every politician in America refusing to take the blame for the $700-billion bailout of Wall Street and dire condition of the U.S. economy, let’s be honest for once.

We really only have ourselves to blame for the all encompassing greed that would even make Gordon Gekko blush.

“American homeowners have been using their homes like ATMs,” James E. Glassman, senior economist for JP Morgan Chase, recently told Chicago-area apartment managers at Preview 2009, an annual industry outlook sponsored by the Chicagoland Apartment Assn.

Some critics say the nation’s mortgage debacle really started back in 1999, when Fannie Mae Corp. began easing the credit requirements on loans it purchased from banks and other lenders in a move designed to help increase homeownership among minorities and low-income consumers.

Fannie Mae, a government-sponsored company, for decades had helped Americans get more affordable home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to recycle the money and make even more loans.

The 1999 Fannie Mae action, which began as a pilot program initiated by the Clinton Administration, involved 24 banks in 15 housing markets nationwide. The program encouraged lenders to extend home mortgages to individuals whose credit was generally not good enough to qualify for conventional loans.

With homeownership already exploding among minorities during the economic boom of the 1990s, the Fannie Mae action really was the icing on the cake. Between 1993 and 1998, the number of mortgages made to Hispanic borrowers skyrocketed more than 87 percent, according to Harvard University’s Joint Center for Housing Studies.

During the same period the number of African Americans who were granted mortgages to buy homes increased by nearly 72 percent, and the number of Asian American mortgage borrowers rose by more than 46 percent.

By 2004, Congress demanded that Fannie Mae help steer more loans to low-income borrowers. Lenders were threatening to sell loans directly to Wall Street unless the organization bought a bigger slice of their riskiest loans.

Fannie Mae complied, and experts say that decision nearly destroyed the company and threatened to drag down the housing market and the economy because it introduced a rash of risky subprime loans to the marketplace.

Today, tens of thousands of these loans are headed into foreclosure nationwide because moderate income borrowers cannot afford to pay the escalating interest charges, and cannot refinance because home values are not appreciating.

However, there may be a happy ending for some of the lucky borrowers who took out mortgages at Countrywide Home Loans, one of the biggest subprime lenders in Illinois.

In early October, nearly 11,000 Countrywide borrowers—many in the Chicago area—are expected to get refinance help and better loan terms to avoid foreclosure after Bank of America, Countrywide’s new owner, agreed to pay an $8.7 billion settlement with Illinois and 10 other states.