Cover Story

House and home

"House and home" Continued...

Issue: "Bleeding economy," Oct. 18, 2008

Mike Garner, once an executive at Silver State Mortgage in Nevada, told This American Life that his company approved loans for borrowers listing no income: "All you have to do is state you have a certain amount of money in your bank account. And then, the next one is just no income, no asset. You don't have to state anything. Just have to have a credit score and a pulse."

Since the 1990s, Congress has encouraged more lending to more low-income borrowers through government-sponsored institutions Fannie Mae and Freddie Mac, hoping to boost home ownership among a group that often rents. After accounting scandals in 2003 and 2004, the companies accelerated their lending to low-income and subprime borrowers, sometimes to placate Congressional leaders. Legislators also benefited from the arrangement by bringing more loans to their local communities.

By June 30, 2008, Fannie Mae reported holding subprime or Alt-A loans worth a total of $619 billion, according to the American Enterprise Institute (AEI). Freddie Mac's reporting wasn't as detailed, but AEI estimated the institution carried at least $392 billion in similar loans. With default rates skyrocketing, neither group could manage the losses without massive government intervention.

The federal government took over Fannie and Freddie in early September in what financial investors predicted could be one of the costliest financial bailouts in history. Less than three weeks later, President Bush proposed a $700 billion Wall Street bailout that dwarfed the Fannie and Freddie intervention.

When Congress initially balked at the enormous package, Treasury Secretary Henry Paulson reportedly told a private meeting of legislators: "Heaven help us all." Federal Reserve Chairman Ben Bernanke spoke of "an uncertain fate" without the bailout.

After failing in the House, legislators added a package of tax breaks and other programs to the bill to entice lawmakers to switch their votes. Rep. John Lewis, a Democrat from Georgia, switched with others to favor the measure saying, "I have decided that the cost of doing nothing is greater than the cost of doing something." The bill passed on Oct. 3.

Bush warned the bailout would take time to work, and international markets proved his point: Three days after the legislation passed, the Dow plunged, falling below 10,000 for the first time in four years as global investors fearing a worsening credit freeze in the United States began selling off stock.

Back in the United States, Heritage Foundation fellow J.D. Foster told WORLD the bill was "a vital measure to help our capital markets function properly." But he also predicted it wouldn't be a quick fix: "This bill affects the depth and length of a recession, not the reality of one."

For donation-dependent groups like Jackson Park Ministries in Charlotte, economic strain can mean strain on budgets to help needy families. So far, the ministry hasn't suffered, according to Reid, and he says he's not worried: "The Lord has always provided for us."

Jamie Dean
Jamie Dean

Jamie lives and works in North Carolina, where she covers the national political beat and other topics as news editor for WORLD. Follow Jamie on Twitter @deanworldmag.

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