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.
”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.
In 1994 gasoline was priced at about $1.11 When President Bill Clinton left office in 2001 gas was $1:43 a gallon. Not to leave out the 9-11 Twin Towers disaster in 2001 which most likely effected the economy.
Now we go to the follow up of the crash years,2004–$2.01, 2006 — $2.58 2007 — $2.81 2008 — $3.26. So in 2006 gas went up by 75%, in 2007 it doubled, in 2008 add another 15% then came the crash.
From 1994 to 2004 the price of gasoline just about doubled. By 2006 consumers had cut back on all that they could and the only next thing was the mortgage payments and the start of foreclosures.. This in turn started the reduced value of real estate and the recession.
In the mean time, bank loans to country’s were based on derivatives, Derivative trading involves interest rate swaps, in which two parties agree to exchange interest cash flows, usually with one of them paying a fixed rate and getting a floating rate in return. These derivative interest rate loans were based on the value of real estate, in most cases. If real estate went up, the interest rate went down. If the real estate value went down, the interest rate went up. So while the real estate started crashing the world country’s loan interest kept going up and up until they couldn’t pay back the loan and they went into bankruptcy which in turn helped turn Europe into a banking nightmare. Ten came the stock market crash, adding poor management of 401 K’s.
In looking back to the signs of the slides, we would have to start with President Carter in:
1978: Congress passes the Revenue Act of 1978, which includes a provision that allows employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The provision becomes Internal Revenue Code Sec. 401(k).
The 401(k) Could Prove a History-Making Fiasco – TheStreet
https://www.thestreet.com/…/
TheStreet, Inc.
Apr 8, 2002 – It’s starting to look like 401(k) plans will go down in history as a costly failure.
There you have it. References included.
Joseph B.D. Saraceno
In looking back to the signs of the slides, we would have to start with President Carter in:
1978: Congress passes the Revenue Act of 1978, which includes a provision that allows employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The provision becomes Internal Revenue Code Sec. 401(k).
The 401(k) Could Prove a History-Making Fiasco – TheStreet
https://www.thestreet.com/…/
TheStreet, Inc.
Apr 8, 2002 – It’s starting to look like 401(k) plans will go down in history as a costly failure. In fact, the abandonment of old-fashioned pension plans is likely …
The Economist
The origins of the financial crisis, Crash course
The effects of the financial crisis are still being felt, five years on. This article, the first of a series of five on the lessons of the upheaval, looks at its causes
Sep 7th 2013 | From the print edition
Start with the folly of the financiers. The years before the crisis saw a flood of irresponsible mortgage lending in America. Loans were doled out to “subprime” borrowers with poor credit histories who struggled to repay them. These risky mortgages were passed on to financial engineers at the big banks, who turned them into supposedly low-risk securities by putting large numbers of them together in pools. Pooling works when the risks of each loan are uncorrelated. The big banks argued that the property markets in different American cities would rise and fall independently of one another. But this proved wrong. Starting in 2006, America suffered a nationwide house-price slump.
The pooled mortgages were used to back securities known as collateralised debt obligations (CDOs), which were sliced into tranches by degree of exposure to default. Investors bought the safer tranches because they trusted the triple-A credit ratings assigned by agencies such as Moody’s and Standard & Poor’s. This was another mistake. The agencies were paid by, and so beholden to, the banks that created the CDOs. They were far too generous in their assessments of them.
Fannie Mae Eases Credit To Aid Mortgage Lending – NYTimes.com
www.nytimes.com/…/fannie-
The New York Times
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
WASHINGTON, Sept. 29— 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.
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.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. 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.