Thursday, October 2, 2008

Frighteningly Prescient New York Times Article

My mother, the COO at a small bank in Longview, forwarded me this article from the New York Times, written in 1999. The article describes steps by Fannie Mae to lower their lending standards, in order to increase minority and lower-income home ownership. Two of the paragraphs are eerily prescient:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

I heard an economist on KUOW this morning refer to the difference between "home ownership" and "home borrowership". We've gotten the two confused, he said. Nobody who takes out a negative amortization mortgage, or who buys a home with no money down, really owns the home. Any future US policy in regard to home ownership should absolutely take note of that distinction.

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