http://query.nytimes.com/…

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

Published: September 30, 1999

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.

…

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.”

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

It was obvious to just about everyone… yet Democrats in particular… the likes of Dodd, Clinton, Schumer, Reid, Obama, etc. endorsed and in several cases explicitly benefited from the Community Reinvestment Act, Fannie Mae and Freddie Mac.

The CRA was not the only or even the most important aspect which lead to the current crisis. Bad lending couldn’t have been sustained or would have been possible if not for the Federal Reserves incredibly low interest rates and market manipulation. The CRA was the vehicle which the rode the low interest wave to creating the boom.

firstdraft.pdf

http://money.cnn.com/…

Among the provisions of the draft bill:

• The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.

• Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, the bill would limit golden parachutes to executives at companies that participate; they will not be able to deduct the salary they pay to executives above $500,000.

• An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.

• Treasury is allowed the option to take ownership stakes in participating companies under certain circumstances.

• Treasury may establish an insurance program - with risk-based premiums paid by the industry - to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 18, 2008.

I’m going to look through it tonight. See what they have snuck in. Some at DailyPaul.com have taken chunks of the bill to scan it quicker.

UPDATE from LewRockwell.com/blog:

New debt limit: $11,315,000,000,000.

That’s $38,000 per capita.

Update: Michael Hall writes:

Section 128 changes effective date from Oct 1 2011 to Oct 1 2008 for this section of current law:

SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.
Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended–
(1) in clause (i), by striking `the ratio of 3 per centum’ and inserting `a ratio of not greater than 3 percent (and which may be zero)’; and

(2) in clause (ii), by striking `and not less than 8 per centum,’ and inserting `(and which may be zero),’.

TITLE 12 > CHAPTER 3 > SUBCHAPTER XIV > § 461
Amendment of Subsections (b) and (c)
Pub. L. 109–351, title II, §§ 201–203, Oct. 13, 2006, §§ 201–203, 120 Stat. 1968, provided that, effective Oct. 1, 2011, this section is amended— (1) in subsection (b)(2)(A), by striking “the ratio of 3 per centum” and inserting “a ratio of not greater than 3 percent (and which may be zero)” in clause (i) and by striking “and not less than 8 per centum,” and inserting “(and which may be zero),” in clause (ii); (2) in subsection (b)

This will allow banks to hold zero reserves if the fed says so.

http://www.nytimes.com/…

The Federal Reserve said Wednesday that it was extending its emergency borrowing program to Wall Street firms and was taking other steps to ease a tight credit market that has hobbled the national economy.  

The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.

Another program, where investment firms can temporarily swap more risky investments for super-safe Treasury securities also will continue through Jan. 30, the Fed said. And, it also will let commercial banks, in a separate program, be able to bid on cash loans that last longer — for 84 days, besides the 28-day loans now available.

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” The Fed said that the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are “no longer unusual and exigent.”

Starting Aug. 11, the Fed will give banks the option of bidding on 84-day cash loans from the Fed, besides the 28-day loans now available. Specifically, the Fed will conduct biweekly auctions. They will alternate between making available $75 billion in 28-day loans and $25 billion in 84-day loans. The steps expand a program started in December aimed at helping banks overcome their credit problems so that they can keep lending to customers.

The European Central Bank and the Swiss National Bank have informed the Fed that they also will make available to their banks similar 84-day cash loans. The Fed also increased its credit line with the European bank to $55 billion from $50 billion.

And the market rallies to the beat of their own destruction.

And in other news to rally against: Bush signs law to ‘help’ homeowners, Freddie and Fannie

President George W. Bush signed into law legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

Bush signed the measure at the White House shortly after 7 a.m., spokesman Tony Fratto said. Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and Federal Housing Administration Director Brian Montgomery were among those present.

“We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,” Fratto said.

The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments.

The measure also is designed to restore confidence in Fannie Mae and Freddie Mac by tightening regulations and authorizing the Treasury secretary to inject capital into the two biggest U.S. providers of mortgage money.

The Treasury chief, who was the lead lobbyist for the White House, persuaded Bush to back off a threatened veto over a section of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Bush said he regarded it as a bailout of lenders. Democrats said it would stabilize neighborhoods.

I think if they want to raise the prices of homes they should scrap this grants for buying and repairing properties and just blow up the homes on them. It’d be cheaper to the tax payers and the increase in scarcity will push up prices. Just like they’ve been doing with farmed products since the Great Depression.

http://www.usatoday.com/…

The mortgage foreclosure crisis has caused a drop in cities’ revenues, a spike in crime, more homelessness and an increase in vacant properties, a survey of elected local officials out today shows.About two-thirds of 211 officials surveyed by the National League of Cities reported an increase in foreclosures in their cities in the past year, according to the online and e-mail questionnaire. A third of them reported a drop in revenues and an increase in abandoned and vacant properties and urban blight.

California cities rely heavily on sales tax revenues since the 1978 passage of Proposition 13, which caps real estate taxes. Riverside faces a $12 million deficit this fiscal year.

“We handle that by essentially not filling positions,” Loveridge says.

Riverside is adjusting the payment schedule of development fees to encourage construction and passed an ordinance requiring the upkeep of homes - even when in foreclosures.

Charlotte is working with the Department of Housing and Urban Development on a program that allows firefighters, police officers and teachers to purchase foreclosed homes at 50% of their listed price.

1. I’d like to see the sources for their claims of a spike in crime and more homelessness and what exactly do they define homelessness as. These people lived somewhere before they bought the house and the bubble hasn’t been going on so long as to have increased the population so much as to fill up all the previous locations. Apartment prices will go up but there are generally plenty of places out there and those prices will likely be less than the mortgage they were paying on the house.
2. What’s the makeup of the foreclosures? Primary homes vs. secondary vs. flippers, etc. From numbers I’ve seen in passing a fairly large percentage (>35%) were extra homes and those looking to flip properties.
3. I doubt very much this has led to an increase in urban blight so quickly. I’ve heard personally that in Brooklyn shops have closed on streets which were completely full before the recession but that isn’t blight.
4. Decrease in revenue? Good. They tax people’s land! How exactly can anyone ever claim you own a property if the State threatens you with violence if you fail to pay them extortion money? The existence of property tax makes us serfs. It’s also what they get for pegging the taxes to the worth of the land on the market. They are looking to push out those who can’t afford it and bring in those who have more money so they can bring in more tax revenue directly and indirectly.
5. “Not filling positions.” They won’t actually cut back… just not expand the government more… at this time. They create the environment for this whole thing to occur and when everyone else is reaping what they sowed they get off by not even having to shrink personnel. They may cut services… only because the credit market is making it difficult to put their taxpayers in greater debt.
6. “[P]rogram that allows firefighters, police officers and teachers to purchase foreclosed homes at 50% of their listed price.” The homes are already cheaper because of the bust. Why should these social workers get any sort of government handout when the rest of us are already paying for this problem? So we get services cut, keep the personnel and therefore the tax increases, our home prices drop, and now our increased taxes are going to go to buy those who are bottom actors in the system which caused the problem and won’t even cut personnel costs? And really… 50%?