Pointing Fingers in the Financial Crisis

Published September 30, 2008

Politicians, economists, and pundits don’t have enough fingers to point at all the causes that created the current financial crisis, but one source that is receiving scant attention was the concerted effort by the Federal National Mortgage Association to write bad loans.

In a September 1990 article in The New York Times that is chilling in hindsight, staff writer Steve A. Holmes carefully reported on the first steps that led the nation to its current turmoil.

Holmes wrote, “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

“The action, which will begin as a pilot program involving 24 banks in 15 markets—including the New York metropolitan region—will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.”

Not only did the high-risk loan program become national at Fannie Mae, it became U.S. policy for Freddie Mac and the whole banking system that was forced to write risky loans under the hammer of the Community Reinvestment Act.

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