Ten years ago, experts recognized that sub-prime mortgages were extremely risky.
One of my husband’s relatives forwarded me this news article from the New York Times. Called “Fannie Mae Eases Credit to Aid Mortgage Lending,” it was published in September 1999.
Some things in the article really jumped out at me:
Fannie Mae hoped to ease credit requirements for folks trying to get a mortgage, and “will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.”
“Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.”
“These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.”
OK — so if they couldn’t get a conventional loan because their finances weren’t good enough, then why on earth would they be able to afford paying an even higher interest rate?
“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.”
O RLY? Ya rly.
Even 10 years ago, when this was just getting started, the experts realized they were taking on a huge risk by dealing with these sub-prime mortgages. They saw this coming. And yet, it happened.
I just hope we as a nation can learn from this, so we don’t repeat our mistakes. But we probably will.
It’s in our best interests to be prepared for the next recession by keeping out of debt, having emergency funds, and living within our means.