The Subprimers

Fannie Mae, FreddieMac, Ginnie Mae; all pop names for three agencies that dealt with mortgages.None granted mortgages, but the first two purchased mortgages often bundled into packages as securities from the lender. Even if at a discount from face value the originating lender made a profit and granted more high risk loans.

The Federal National Mortgage Association (Fannie Mae) was established in 1938 under FDR-a Democrat- to provide liquidity for the mortgage market. It was a government agency, and its finances appeared as part of the federal budget balance sheets.

In 1964 during Johnson’s –a Democrat-Presidency it was converted into a private corporation. At that time a new government agency, Government National Mortgage Association (Ginnie Mae) assumed responsibility as guarantor for government-issued mortgages Ginnie Mae has not been involved in any part of the mortgage debacle.

During Clinton’s Presidency –a Democrat- in 1995 Fannie Mae began receiving affordable housing credits for buying subprime mortgages. I have copied from Wikipedia a definition of “subprime:
Subprime lending (near-prime, non-prime, or second chance lending) is a financial term that was popularized by the media during the "credit crunch" of 2008 and involves financial institutions providing credit to borrowers deemed "subprime" (sometimes referred to as "under-banked"). Subprime borrowers have a heightened perceived risk of default, such as those who have a history of loan delinquency or default, those with a recorded bankruptcy, or those with limited debt experience. Although there is no standardized definition, in the US subprime loans are usually classified as those where the borrower has a credit score below a certain level, e.g. a FICO score below 660.
Subprime could also refer to a security for which a return above the "prime" rate is received, also known as C-paper. In the United States, mortgage lending specifically, the term "subprime" can be applied to "non conforming" loans, those that do not meet Fannie Mae or Freddie Mac guidelines, generally due to one of an array of factors including the size of the loan, income to mortgage payment ratio or the quality of the documentation provided with the loan. The phrase also refers to bank loans taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and to certain types of self-employed persons. Subprime lending encompasses a variety of credit types, including mortgages, auto loans, and credit cards.

In 1999 Fannnie Mae was encouraged to increase the number of loans to lower income individuals to increase house ownerships and also profits. There was a reversal of thinking in 2000, still during the Clinton years, but under Bush in 2004 restrictive lending rules were dropped and high risk loans were accepted.

The Federal Home Loan Mortgage Corporation known as Freddie Mac was chartered in 1970 as a result of the Emergency Home Finance Act of 1970. Nixon was President and there was the intention to increase the secondary mortgage market.

In 1989 the Financial Institutions,Reform,Recovery, and Enforcement Act removed Freddie Mac from the control of the Federal Home Loan Bank System and placed it under HUD oversight as a private corporation. This was in George H.W. Bush’s administration.

In 1995 during the Clinton years Freddie Mac began receiving housing credits for buying subprime securities.

Each of us may have a better conception of how this crisis happened. I for one can editorialize.

It is apparent that although the collapse in the risk mortgage market came during this Republican administration many of its problems began in Democratic years when there was legislation enacted loosening restrictions on credit. Under FDR there was an attempt to enable home ownership while the country had yet to emerge from the credit restrictions of the depression. Under LBJ Fannie Mae was removed from a government agency for budget purposes. Nixon was responsible for Freddie Mac . On George Bush the First's watch Freddie Mac was removed from strict banking controls and privatized under HUD supervision. Under Clinton risk lending was encouraged. Under George W. Bush it was allowed to run uncontrolled.

We all are responsible for today’s economic disaster. Free enterprise in credit as in energy meant great profits for the unscrupulous. Their manipulations were reflected in the stock market paper wealth which grew to heights never seen before. No one wanted to face reality; instead “the good times were going to go on forever”. Obscene salaries for executives and athletes were accepted as commonplace. Boards of Directors or Trustees entrusted their fiduciary responsibilities to those they hired.

Now is not the time to blame, but rather the time to make sure that our elected officials are committed to the best interests of all not a small group or themselves.