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Bankers Association eventually adhered. As shown later, this program was explicitly
intended to encourage a reduction in underwriting standards so as to increase access
by low income borrowers to mortgage credit. Countrywide was by far the largest
member of this group and by the early 2000s was also competing, along with others,
for the same NTMs sought by Fannie and Freddie, FHA, and the banks under the
CRA .
With all these entities seeking the same loans, it was not likely that all of them
would fi nd enough borrowers who could meet the traditional mortgage lending
standards that Fannie and Freddie had established. It also created ideal conditions
for a decline in underwriting standards, since every one of these competing entities
was seeking NTMs not for purposes of profi t but in order to meet an obligation
imposed by the government. Th e obvious way to meet this obligation was simply to
reduce the underwriting standards that impeded compliance with the government’s
requirements.
Indeed, by the early 1990s, traditional underwriting standards had come to
be seen as an obstacle to home ownership by LMI families. In a 1991 Senate Banking
Committee hearing, Gail Cincotta, a highly respected supporter of low-income
lending, observed that “Lenders will respond to the most conservative standards
unless [Fannie Mae and Freddie Mac] are aggressive and convincing in their eff orts
to expand historically narrow underwriting.” 13
In this light, it appears that Congress set out deliberately in the GSE Act not
only to change the culture of the GSEs, but also to set up a mechanism that would
reduce traditional underwriting standards over time, so that home ownership
would be more accessible to LMI borrowers. For example, the legislation directed
the GSEs to study “Th e implications of implementing underwriting standards
that—(A) establish a downpayment requirement for mortgagors of 5 percent or
14
less; (B) allow the use of cash on hand as a source of 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
15
the date of the application for the mortgage.” None of these elements was part of
traditional mortgage underwriting standards as understood at the time.
I have been unable to fi nd any studies by Fannie or Freddie in response to
this congressional direction, but HUD treated these cues as a mandate to use the
AH goals as a mechanism for eroding the traditional standards. HUD was very
explicit about this, as shown in Part II. In the end, the goal was accomplished by
gradually expanding the requirements and enlarging the AH goals over succeeding
years, so that the only way Fannie and Freddie could meet the AH goals was by
purchasing increasing numbers of subprime and Alt-A mortgages, and particularly
mortgages with low or no downpayments. Because the GSEs were the dominant
players in the mortgage market, their purchases also put competitive pressure on
the other entities that were subject to government control—FHA and the banks

13 Allen Fishbein, “Filling the Half-Empty Glass: Th e Role of Community Advocacy in Redefi ning the
Public Responsibilities of Government-Sponsored Housing Enterprises”, Chapter 7 of Organizing Access
to Capital: Advocacy and the Democratization of Financial Institutions, 2003, Gregory Squires, editor.
14 At that time the GSEs’ minimum downpayment was 5 percent, and was accompanied by conservative
underwriting. Th e congressional request was to break through that limitation.
15 GSE Act, Section 1354(a).