The first goal was directed towards low income

Info icon This preview shows pages 29–31. Sign up to view the full content.

The first goal was directed towards low-income housing, defined as household incomes that were below the area median. The second goal chose underserved areas as defined by census tracts with median household incomes that were less than 90 percent of the area median, or else in census tracts with a minority population of at least 30 percent and with a tract median income of less than 120 percent of the area median income. The final goal named “special affordable housing” targeted census tracts with family incomes less than 60 percent of the area median (or else in tracts with incomes less than 80 percent of the area median and also located in specified low-income areas). 10 Until the late 1990s, Fannie and Freddie were mostly part of the general process of encouraging people who would buy anyway to buy more house on a larger lot. And they were doing most of their business in upper income communities. However, as Jonathan Brown explains in Peter Wallison’s book – Serving Two Masters, Yet Out of Control , Fannie and Freddie were doing little business in the “inner city” where poor households tended to live, and more business in the suburbs. These patterns led HUD in 2004 to step up the targets, which in Table 2-1 below provides the detailed goals for 1993 and after.
Image of page 29

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

28 turn, led Fannie and Freddie to undertake a greater proportion of high-risk mortgages. This increase followed on the heels of a large increase in targets in 2001. Table 2-1: GSE Affordable Housing Goals Since 1993 (Share of mortgage purchases) 1993- 1995 1996 1997- 2000 2001- 2004 2005 2006 2007 2008 Low- and Moderate-Income Goal 30% 40% 42% 50% 52% 53% 55% 56% Underserved Areas Goal 30% 21% 24% 31% 37% 38% 38% 39% Special Affordable Goal NA* 12% 14% 20% 22% 23% 25% 27% Source: FHFA; *NA – Not Applicable: goals set in dollar amounts for each GSE rather than percentages. It is an interesting counterfactual question to ask whether the GSEs’ foray into risky lending would have occurred without these mission goals. In other words, in their desire to expand, would they still have moved along the increasingly risky mortgage credit curve? We believe that, given the GSEs’ cheap source of financing and weak regulatory oversight, they would still have moved in this direction. Nevertheless, FHEFSSA made the point somewhat moot. To reach the targets, FHEFSSA called for a study of the “implications of implementing underwriting standards that (A) establish a downpayment requirement for mortgagors of 5 percent or less, (B) allow the use of cash on hand as a source for downpayments, and (C) approve borrowers who have a credit history of delinquencies if the borrower can demonstrate a satisfactory credit history for at least the 12-month period ending on the date of the application for the mortgage.” 11 A study commissioned by HUD in 2002 found that, over the previous decade, Fannie Mae and Freddie Mac had in fact adopted more flexible underwriting guidelines in terms of (A) – (C) above.
Image of page 30
Image of page 31
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern