The train wreck we should have seen coming
In an attempt to increase home ownership among minorities and low to moderate income consumers, the Clinton Administration was instrumental in putting pressure on Fannie Mae to expand loan options to this demographic. The article in the New York Times from September 30, 1999 is crystal clear in its analysis and prediction.
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.”
Why then did no one pay attention? Because there was money to be made – no doubt! Whether or not you choose to lay blame on the Democrats or Republicans; the Feds or the lending institutions; Freddie Mac and/or Fannie Mae; the consumer or the Realtor for this downfall, it clearly didn’t just start 2 years ago. Most of us in the business saw this coming like a runaway train on the verge of derailing – with little to no choice but to watch the impending train wreck!
