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The real estate / housing debacle along with the U.S. credit crunch right now is blamed in part on the folks who started pressuring banks to make loans that the banks sensed might fall into trouble (sub-prime mortgages) because the borrowers were borrowing too much relative to their income, had bad credit, or were buying too big of a house for their budget. This led to the popularization of sub-prime mortgages that eventually fell apart, as some prudent lenders sensed they would and might never have made were it not for the pressure they were being put under to make more loans to almost anyone wanting to get into a house.

So who was it that started this big idea? Who first started pressuring the banks to do this? Was it a President? Was it the head of some agency? Was it community activist groups like ACORN? I think the pressure came from several sources, but I need to know who was the most responsible, and when did they start doing this such that it spread like an ugly rash across the home mortgage market and led to the crisis we are in today.

4 Thoughts on Re: Pressure on banks 2 make high risk loans 2 borrowers w/ poor credit: WHAT YEAR did it start & WHO started?
  1. Reply
    February 2, 2014 at 11:25 am

    there were sub prime notes for years and years. BUt with that said it was Mr. Clinton who signed the community reinvestment act that made Fannie and Freddie become lax in prime loans to these types of borrowers thus creating the hybrid mortgages like pick a payment loans and interest only notes. It takes some time for these notes to recast and when they did the owners could not pay as they had agreed to in the terms.

  2. Reply
    doreen k
    February 2, 2014 at 11:30 am

    On September 30, 1999, the New York Times reported that the Fannie Mae Corporation was easing credit requirements on loans that it purchases from banks and other lenders.

    The pressure was primarily from three sources. Banks, thrift institutions and mortgage companies were pressuring Fannie Mae to help them make more loans to sub-prime borrowers. The banks and other financial institutions made their money on fees for originating and selling these loans.

    Meanwhile, stock holders, looking for higher yields, were pressuring Fannie Mae to expand its lending to a broader income group to increase its phenomenal profits.

    And, the Clinton Administration wanted to expand mortgage loans among low-to-moderate income households.

    The opportunists used the call to expand home ownership rates among minorities and lower income households as justification to open the floodgates on mortgage lending. Even though community development banks had an excellent track record of making mortgage loans to disadvantaged groups, there was no such motive among the lenders selling their bad loans to Fannie Mae and Freddie Mac. They did not care if the loans were paid back because all the risk was passed along to the investors and ultimately the taxpayers. All they cared about was maximizing profits and collecting their fees.

    The banks were not pressured – they were doing the pressuring. They merely used the call to expand home ownership as a cover for their irresponsible lending practices.

    You may hear that the Community Reinvestment Act had something to do with this lending crisis, and that really isn’t true. 96% of the subprime lenders were not subject to CRA because they were private companies. Of the few subprime lenders that were covered under CRA, they all had a much better repayment record.

    By the way, the previous answer is incorrect regarding Bill Clinton signing the Community Reinvestment Act. Bill Clinton was elected in 1992 and took office in 1993. The Community Reinvestment Act took effect in 1977.

  3. Reply
    February 2, 2014 at 11:34 am

    I concur with Gollfer

  4. Reply
    February 2, 2014 at 12:02 pm

    Ok, so the CRA was signed by Jimma Cata and the rules for lending were relaxed by Clinton.
    Early in the Bush administration there was talk of tightening mortgage lending by Fannie and Freddie but who said there was no problem with the loans?
    Barney Frank and Chris Dodd both of whom benefitted from the lax lending policies.

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