How about a criminal investigation?

Congress folk scurry like cockroaches when light is shined on how we as a country got into this credit crisis. But the truth finds a way to expose them, as with this New York Times article from 1999. Reading this story is enough to make your blood boil. Instead of asking these same politicians to fix the problem they created, perhaps we ought to conduct a criminal inquiry into folks like Barney Frank, Chris Dodd and Franklin Raines. And, just to set the record straight for House Speaker Nancy Pelosi, note that George Bush was not president in 1999. That would be Bill Clinton.

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.

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.

''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.''

Demographic  information on these borrowers is sketchy. But at least one study  indicates that 18 percent of the loans in the subprime market went to  black borrowers, compared to 5 per cent of loans in the conventional  loan market.

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  rescuesimilar 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.''

Under Fannie  Mae's pilot program, consumers who qualify can secure a mortgage with an  interest rate one percentage point above that of a conventional, 30-year  fixed rate mortgage of less than $240,000 -- a rate that currently  averages about 7.76 per cent. If the borrower makes his or her monthly  payments on time for two years, the one percentage point premium is  dropped.

Fannie Mae,  the nation's biggest underwriter of home mortgages, does not lend money  directly to consumers. Instead, it purchases loans that banks make on  what is called the secondary market. By expanding the type of  loans that it will buy, Fannie Mae is hoping to spur banks to make more  loans to people with less-than-stellar credit  ratings.

Fannie Mae  officials stress that the new mortgages will be extended to all  potential borrowers who can qualify for a mortgage. But they add  that the move is  intended in part to increase the number of minority and low income home  owners who tend to have worse credit ratings than non-Hispanic  whites.

Home ownership  has, in fact, exploded among minorities during the economic boom of the  1990's. The number of mortgages extended to Hispanic applicants jumped  by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During  that same period the number of African Americans who got mortgages to  buy a home increased by 71.9 per cent and the number of Asian Americans  by 46.3 per cent.

In contrast,  the number of non-Hispanic whites who received loans for homes increased  by 31.2 per cent.

Despite these  gains, home ownership rates for minorities continue to lag behind  non-Hispanic whites, in part because blacks and Hispanics in particular  tend to have on average worse credit  ratings.

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.