Bill Clinton plunged Fannie Mae and Freddie Mac into buying subprime mortgages. The government owned over 70% of them before the housing crash hit in 2007.
So now we have new rules on mortgage lending. Who qualifies?
The WSJ says: About one in five mortgages purchased by Fannie Mae or Freddie Mac over the 1997-2009 period would meet the proposed standard of “safe” mortgages that would be exempted from costly new lending rules, according to a federal report published last week.
Consumer advocates and the real-estate industry are preparing an all-out effort to soften new rules that they say create an overly conservative definition of “safe” mortgages that are exempted from costly new lending rules.
To recap: The Dodd-Frank Act requires banks to hold 5% of the credit risk of mortgages that are bundled together and sold off as securities. The idea is that banks and other issuers of securitized loans won’t make poisonous mortgages if they have to eat some of their own cooking.
But regulators also defined certain gold-standard loans that will be exempt from those rules, which were put out for public comment last week. The current debate is focusing on just where those lines should be drawn.