I recommend following article
by Edward J. Pinto titled “Crime
scene investigation: The premeditated assault on the prime mortgage”
published on 8/15/2012 on the AEA website.
It’s a good, brief summary of
how the Clinton Administration, Congress, and specifically the big government
sponsored entities Fannie Mae and Freddie Mac have contributed to an enormous
deterioration in lending standards in pursuit of affordable housing at any
price.
“First, with respect to
capital, Fannie went from having no home purchase loans with a down payment of three percent or less in 1992, to
nearly 40% in 2007.
Second, Fannie loans with
subprime credit - as evidenced by a FICO
credit score of less than 660 - tripled from about 6% in 1990 to 18% in 2007.
Third, by 2007, over 1/3rd of
Fannie and Freddie's fully documented loans exceeded a 45% total debt-to-income
(TDI) ratio. This level was well in excess of their prior maximum level of
about 42% in 1991, which had been associated with "B" grade or worse
subprime loans.
Fourth, Fannie and Freddie, as
the de facto standard setters for collateral valuation, effectively eliminated the use of investment and replacement cost
approaches to value, and weakened the comparable sales approach.
Finally, Fannie and Freddie's
confidence in borrower income statements evaporated as the percentage of
acquisitions denominated as Alt-A, low
document, or no document went from near zero in 1991 to nearly 40% in 2007.”
(emphasis added)
Who allowed this to happen?
Why did the President, US Congress, and federal regulators including the Fed
fail to prevent this insane deterioration of lending standards?
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