Part of the problem lies in changes in mortgage processing over the past few decades. Fannie and Freddie rolled out automated-underwriting systems in the mid-1990s that allowed lenders to punch borrower data into computer systems in order to receive faster approvals or denials.The mortgage bust highlighted weaknesses. Fannie and Freddie did few upfront reviews of loans that they purchased; instead, they screened some of those that went bad, forcing banks to buy back any with obvious signs of negligence or fraud.After the meltdown, the mortgage giants began hiring armies of auditors—called "bounty hunters" by bank executives—to conduct detailed reviews of loan files to spot errors that could justify a put-back.deja vu
In this PBS NewsHour video-clip aired January 21, 1998 President Bill Clinton points to his accomplishment of having his 'regulators' force banks to grant loans to applicants to whom the banks would not have otherwise granted loans.
In this video-clip President Clinton, claims that 85% of the loans issued under the guidelines of the (then 20 plus year old) Community Reinvestment Act were issued during his first five years in office.
Is it any wonder that the GSE's, Fannie Mae and Freddie Mac, under direction from Clinton and his two administration's HUD Chairmen, Henry Cisneros, and later Andrew Cuomo, continued lowering the standards for loans they would purchase from mortgage originators?
And, is it any wonder that investment banking interests devised ways to 'package' large numbers of mortgage loans into "tranches" of different risk level in order to diversify the risk they were being pressured through regulatory mandate, and political persuasion, to accept?
Notice that Clinton mentions this activity was not necessarily an affirmative action or civil rights oriented activity, but rather that it had significant impact on the economy. . . .
See, The Community Reinvestment Act, at: http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Bill Clinton's Drive to Increase Homeownership Went Way Too Far By Peter Coy -pub. in Bloomberg BusinessWeek 2/28/2008, at: http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_...
Bill Clinton, Wanted For Crimes Against Our Economy By Jim Newman pub. 2/27/2012, at: http://kayleighmcenany.com/2012/02/27/jim-newman-bill-clinton-wanted-for-crimes-against-our-economy/
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