The Monkey Shack

An article published by the LA Times in May of 1999 has resurfaced in light of the economic crisis now staring this country in the face. In the article, the LA Times heaped praise onto the Clinton administration and the Democratic congress for their solution to the housing problem. And what was it exactly they found so noteworthy of Democrats' policies?

A mandate that Fannie Mae and Freddie Mac increase their purchases of mortgages for low income and medium-income borrowers. YIKES!

Nine years later, this LA Times piece should go down as one of the biggest "swing-and-a-miss" political commentaries in history. Somehow, I get the feeling the LA Times wishes this is one it could retract.

Here's some of the highlights. But if you want to read the entire article, which I highly recommend, you can view it here.

It’s one of the hidden success stories of the Clinton era. In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded. The number of African Americans owning their own home is now increasing nearly three times as fast as the number of whites; the number of Latino homeowners is growing nearly five times as fast as that of whites.

In 1992, [a majority Democratic] 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.

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.