the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action ... will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.

...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...

''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.

...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.

...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.

''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.''

These privileges do more than just give the GSEs a funding cost advantage, they also reinforce the perception of a federal guarantee on GSE debt obligations.  In order to avoid a federal bailout like the one we saw with the savings and loan industry, policymakers may want to consider a variety of alternatives, including privatization of one or more of the GSEs.

And mortgage lenders are willing to oblige, even in the case of buyers who might not have qualified before. The average downpayment has dropped to only 5% to 10% over the past decade rather than the 10% to 20% it was in the past, according to Doug Perry, a first vice-president at mortgage lender Countrywide Home Loans Inc. Under the right conditions, Countrywide is even willing to lend homebuyers 103% of the value of their new home to cover their closing costs, too.

In part, the aggressive tactics of mortgage lenders have been made possible by the automated underwriting systems developed in recent years by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These two government-created companies buy 70% of new mortgages in the U.S. and repackage them as mortgage-backed securities, which they then sell to investors.

The new underwriting systems being used by Fannie Mae and Freddie Mac, which are analogous to the credit-scoring systems used by banks, allow for higher loan-to-income ratios than in the past to encourage home buying. That's good for borrowers, but the relaxed ratios could pose serious problems in the future. For one, there is already evidence that defaults are rising, particularly at the low end of the market...

...Moreover, investors in mortgage-backed securities have always assumed that the two mortgage companies are backed by an implicit government guarantee that investors would be bailed out in the event of big mortgage defaults.

re:  "Let's you and her fight" [sic]

In the Wednesday op-ed concerning "family issues", the Chronicle decries the state of the American worker with regard to government-enforced benefits for American workers.  In claiming that Americans enjoy "paltry maternal benefits compared to other industrialized nations" and that "there is no area of family concerns in which the United States shines", the editorial board calls for greater government intrusion on businesses and employers to force them to provide more benefits to the American worker.

What the Chronicle editorialists ignore, however, is that doing so raises the cost of labor, providing a disincentive for businesses to hire workers.  Even with the US economy in a downturn with regard to the labor market, our current 6.1% unemployment rate, considered high in the US, is still lower than most industrialized countries, especially ones that have government requirements concerning paid leave benefits and more socialized health care.  American workers do extremely well when comparing per capita income and GDP per capita -- American businesses, freer from the shackles of government, hire more workers and pay them more than their counterparts in other industrialized countries.

The question then becomes:  would we rather have more people working, holding jobs that are better paying, or more people unemployed, waiting for a job with those government-guaranteed benefits?  The Chronicle editorialists seem to prefer the latter.

The best way to encourage economic opportunity is not to expand the government, but rather to expand freedom.  Reduce the cost of labor and remove the disincentives to growth even further by reducing taxes and bureaucracy, and watch the economy grow even faster, creating more jobs, opportunity, and wealth.  Businesses and individuals are better stewards of their own money than bureaucrats in Washington, DC.

Sincerely,
Dave Smith

re:  "The American Capacity to Innovate Is Steadily Eroding"

Thomas Friedman is correct in at least part of his central thesis:  innovation is central to economic prosperity.  Unfortunately, Friedman continues to advocate increasing government regulation of the economy; such intrusion has a negative impact on innovation.  It is competition in the free market that spurs innovation, not government regulation or research grants.  Rather than increasing the size and scope of government, a better way to promote innovation and economic growth is to decrease government.  Lower taxes on capital investment and, yes, on profits unleash the private sector, promoting an atmosphere conducive to capitalism's creativity.  The government does not have any special expertise at promoting which areas of investment provide the best returns, and government subsidies and grants promote giveaways to special interests at taxpayer expense.

Sincerely,
Dave Smith

This political campaign has been one for the ages, especially for those of us who consider ourselves political junkies.  Nearly every manner of intrigue and nuance has been involved, and we're just now getting to the heart of the general campaign.

First of all, whatever one thinks of Barack Obama's politics, it is certainly an uplifting story to see the USA have an African-American with basically a 50-50 shot of winning the Presidency.  In becoming the Democratic nominee, he defeated the wife of a former President (much to that particular President's chagrin), as well as much more well-established party luminaries who no doubt thought that their own respective times had come (one striking example:  longtime Senator Joe Biden, now #2 to Obama).  Obama did so having served, at the time of his announcement, less than two years in our national legislature.  If the rise of Barack Obama shows nothing else, it shows the road to even the highest office in the land is not reserved only for the rich and connected.  This fact emphatically re-affirms the basic tenets of the American dream:  we all have the opportunity to achieve in this country, not just a wealthy (or white) elite.

Obama's opponent is, of course, John McCain.  Here we have a candidate who was left for dead (figuratively speaking, of course) as late as this time last year.  A candidate who had laid off nearly all of his campaign staff because he was out of money, and seemed to be continuing his campaign in a quixotic quest to keep his issues of reform and national security on the table.  Along the way, he defeated better-funded candidates with more cache from Law & Order's Fred Thompson to "America's Mayor" Rudy Giuliani.  Again, this shows that regardless of how well-connected one might be, regardless of how much money one might have, the American political scene is one that depends more on the ability to woo voters than to raise campaign cash.

Then we get to the most surprising player of all in the election game of 2008:  Republican VP Nominee Sarah Palin.  If Barack Obama's rise has been astounding, new superlatives might be necessary to describe her ascent.  She rose through the ranks of grassroots Alaska politics:  from city council and then mayor of a small town in Alaska to the head of the state's Oil and Gas Conservation Commission to Governor of Alaska.  Ironically, when Frank Murkowski was elected Governor and resigned the US Senate, he considered appointing her to his Senate seat.  He appointed his daughter instead, and Palin defeated him in the subsequent Republican primary before beating a former Democratic governor in the general election.  Her rise has been noted at each step for a strong commitment to reform and to shaking up the established power structure.

The Palin pick not only made history, but McCain could have made no other choice for running mate that would've electrified the grassroots of the Republican Party.  In Minneapolis, all the buzz was about Gov. Palin, and more people watched her acceptance speech than watched McCain's or Obama's.  But again, we have a complete outsider -- Juneau is closer to Washington state than Washington, DC.  The Palin family is far from wealthy and connected; her husband is a commercial fisherman and oilfield worker (and, interestingly, a union member).

Whichever ticket wins in November, we are witnessing history in the making -- either the first African American President, or the first female Vice President.  We are also witnessing barriers coming down in other, more subtle ways -- the de-centralization of power, for example.  In very few countries and very eras could we see such a confluence of meteoric rises.  In very few elections could we see such a shaking of the establishment.

re:  "GOP convention has been McCain at his cynical worst"

In his criticism of John McCain's choice of Alaska Gov. Sarah Palin as his running mate, E.J. Dionne describes the pick as "cynical" and "quintessentially political".  Well then.  Imagine a politician, running for office in a political campaign, making a choice that was actually political in nature.  In singling out McCain's decision, he seems to imply that making a "political" choice is the exception, not the rule.  I would propose that the opposite is true.

 

As for the charge of cynicism, whether or not one agrees with her politics and worldview, Gov. Palin has energized the grassroots of the Republican Party and gotten the attention of the American electorate.  That hardly seems to be any more cynical than the Democratic Party choosing a candidate with similar qualities to lead its own ticket.

 

Sincerely,

Dave Smith

In his Wednesday column, Thomas Friedman dismisses Alaska Governor Sarah Palin’s desire to take advantage of her state’s abundant oil and gas resources.  Mr. Friedman claims that “ET”, or “renewable energy technology”, will become the next “great global industry” over the next few years in much the same way that information technology (IT) has done so over the past several years.  His prediction may well be true, but he further asserts that for “ET” to “rival and surpass” IT requires government-imposed restraints on individual liberty and taxpayer-funded subsidies of special interests.  In doing so, he neglects to recognize that IT’s success has been the fruit of private sector innovation and development in the free market rather than centralized government planning and spending of the public’s dime.