The Once and Future (Credit) Bubble
This article in the Wall Street Journal by Edward Pinto describes the fuse that was lit by the 1992 GSE Act. Mr. Pinto chief credit officer at Fannie Mae from 1987 to 1989, so has some knowledge of this act and its impacts on the underwriting process of loans securitized by Freddie Mac and Fannie Mae.
Groups like ACORN were invited by House Banking Committee Henry Gonzalez to -
draft statutory language setting the law’s affordable-housing mandates. Interim goals were set at 30% of the single-family mortgages purchased by Fannie and Freddie, and the Department of Housing and Urban Development has increased that percentage over time.
This eventually led to zero percent down mortgages, the (continued) bailout of Freddie Mae and Fannie Mac, and our current credit difficulties. Make no mistakes about it. The economic problems that we suffered over the last 18 months, and continue with today, have their roots in Congressionally-mandated actions to rewrite the standards for credit-worthiness to help facilitate home ownership.
While these were (are) admirable goals, the road to economic hell is paved with good intentions.
