“On June 24, 2004, seventy-six House Democrats, led by Nancy Pelosi (D-Calif.) and Barney Frank (D-Mass.), delivered the necessary support through a letter to President Bush, showing how much their support was linked to the affordable-housing goals. “We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing,” the letter began…

…”Until recently, we have been disappointed that the administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the administration’s legislative proposal regarding the GSEs would weaken affordable-housing performance by the GSEs, by emphasizing safety and soundness. While the GSEs’ affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable-housing.”

…Other pressures were developing…..In late 2003 and 2004, subprime lenders for the first time became effective distributors of their own NTMs (nontraditional mortgages) through the creation and sale of PMBS (private MBS). This was troubling to Fannie for two reasons. First, these lenders had been large suppliers of subprime mortgages, which were necessary for the GSEs to meet their (HUD-imposed) affordable-housing quotas and second, if these lenders were able to securitize substantial numbers of subprime loans, including many that were goals-eligible, it raised questions about whether the GSEs were actually necessary for the support of affordable housing…..It’s easy to see in this light why Fannie and Freddie would be concerned about falling short of the affordable-housing goals and losing their leadership position in support of low-income lending. If Fannie and Freddie failed to meet the current goals, the Republicans would be able to argue that the Democrats’ demand for more low-income lending was unrealistic and could not be achieved, and anyway private-sector subprime lenders were doing a better job than the GSEs. This would have given the Republicans an open field for stricter regulation of the GSEs or even privatization. Further growth of PMBS backed by NTMs in 2005 and 2006 caused great concern among Fannie’s top officers about what they called Fannie’s “relevance.” This was code for what they feared would be a loss of political support among congressional Democrats if the GSEs failed to lead the industry in low-income and minority lending.”

Excerpt from Peter J. Wallison’s 2015 “Hidden in Plain Sight: Chapter 6, The Decline in Underwriting Standards”

Posted on April 10, 2015, in Postings. Bookmark the permalink. Leave a comment.

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