The Blog @ Spolitics

A Trip to the Memory Hole: What Once Was Good Is Bad In Lending

Courtesy Hot Air, this trip to the memory hole revisits all the great things the Clinton administration was doing to help extend home ownership to people who couldn’t really afford it in order to boost the number of minority home owners. This included forcing banks to make riskier loans and forcing Fannie and Freddie to buy those loans. Here are you money quotes.

In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments–or with mortgage payments that represent an unusually high percentage of a buyer’s income. That’s made banks willing to lend to lower-income families they once might have rejected.

See, back then this was considered good; anything less would have been racist. Now, we regard this as “predatory lending.” As a result, congress wants to punish the banks for the very activity they mandated. Even Fannie and Freddie worried they were going to far.

The top priority may be to ask more of Fannie Mae and Freddie Mac. The two companies are now required to devote 42% of their portfolios to loans for low- and moderate-income borrowers; HUD, which has the authority to set the targets, is poised to propose an increase this summer. Although Fannie Mae actually has exceeded its target since 1994, it is resisting any hike. It argues that a higher target would only produce more loan defaults by pressuring banks to accept unsafe borrowers. HUD says Fannie Mae is resisting more low-income loans because they are less profitable.

Less profitable? It makes you wonder why they ever got into the predatory lending business.