by Michael Solomon
Only it is not a bucket, it is the U.S. economy. It has been said, the only two products you will ever need to fix anything are “Duct Tape” and “WD-40.” The bucket has been leaking since designer mortgages [My italics] were invented during the Clinton administration, which allowed low-income families to become homeowners. If you were able to sign your name, you were able to get a loan. The emphasis was placed on your credit score not your income. If you had a combined income of $30,000, which was inadequate by most loan officer’s standards to get an auto loan, it did not matter. Lenders did not verify income, they only looked at FICO scores. As long as your credit score was at least 690 you could probably purchase a $250,000 home.
FNMA and FMAC have been backed by the federal government. They buy mortgage loans from the lenders who originate them. Four-years ago they were both in trouble because of fuzzy accounting practices. FNMA CEO, Franklin Raines, Pres. Clinton’s former budget director, was fired. However, he did not leave quietly. It appears that he must have sprayed the hinges on the office door with WD-40 so he would not be heard sneaking out with a $90 million dollar bonus he gave himself for outstanding performance. (?)
FNMA placated Congress by promising to help more poor people buy homes by helping them to get mortgages. This led them to buy riskier and riskier loans from private lenders who did not care because FNMA was going to buy them. This created the chance for everyone to formulate shakier loans. FNMA and FMAC bought trillions of dollars of these loans. In turn, they then sold them to financial institutions, who purchased them believing that they were safe because the government was behind them. It was only an appearance the government backed them; in fact, they were not. These institutions did not pay attention to the assets they were acquiring or the risks they were taking as they were spread throughout the financial system.
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