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policies out of fear that they would be brought under the Community Reinvestment
65
Act through legislation. In addition, although not subject to HUD’s jurisdiction,
the new tighter CRA regulations that became eff ective in 1995 led to a process in
which community groups could obtain commitments for substantial amounts of
CRA-qualifying mortgages and other loans to subprime borrowers when banks
were applying for merger approvals. 66
By 2004, HUD believed it had achieved the “revolution” it was looking for:
Over the past ten years, there has been a ‘revolution in aff ordable lending’ that has
extended homeownership opportunities to historically underserved households.
Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution in
aff ordable lending’. During the mid-to-late 1990s, they added fl exibility to their
underwriting guidelines, introduced new low-downpayment products, and worked to
expand the use of automated underwriting in evaluating the creditworthiness of loan
applicants. HMDA data suggest that the industry and GSE initiatives are increasing
the fl ow of credit to underserved borrowers. Between 1993 and 2003, conventional
loans to low income and minority families increased at much faster rates than loans to
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upper-income and nonminority families. [emphasis supplied]
Th is turned out to be an immense error of policy. By 2010, even the strongest
supporters of aff ordable housing as enforced by HUD had recognized their error.
In an interview on Larry Kudlow’s CNBC television program in late August,
Representative Barney Frank (D-Mass.)—the chair of the House Financial Services
Committee and previously the strongest congressional advocate for aff ordable
housing—conceded that he had erred: “I hope by next year we’ll have abolished
Fannie and Freddie . . . it was a great mistake to push lower-income people into
housing they couldn’t aff ord and couldn’t really handle once they had it.” He then
added, “I had been too sanguine about Fannie and Freddie.” 68

2. The Decline of Mortgage
Underwriting Standards

Before the enactment of the GSE Act in 1992, and HUD’s adoption of a
policy thereaft er to reduce underwriting standards, the GSEs followed conservative
underwriting practices. For example, in a random review by Fannie Mae of 25,804
loans from October 1988 to January 1992, over 78 percent had LTV ratios of 80
percent or less, while only 5.75 percent had LTV ratios of 91 to 95 percent. High
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risk lending was confi ned primarily to FHA (which was controlled by HUD) and
specialized subprime lenders who oft en sold the mortgages they originated to FHA.
What caused these conservative standards to decline? Th e Commission majority,

65 Steve Cocheo, “Fair-lending pressure builds,” ABA Banking Journal, vol. 86, 1994, http://www.questia.
com/googleScholar.qst?docId=5001707340.
66 See NCRC, CRA Commitments, 2007.
67 Federal Register,vol. 69, No. 211, November 2, 2004, Rules and Regulations, p.63585, http://fdsys.gpo.
gov/fdsys/pkg/FR-2004-11-02/pdf/04-24101.pdf .
68 Larry Kudlow, “Barney Frank Comes Home to the Facts,” GOPUSA, August 23, 2010, available at
www.gopusa.com/commentary/2010/08/kudlow-barney-frank-comes-home-to-the-facts.php#ixz
z0zdCrWpCY (accessed September 20, 2010).
69 Document in author’s fi les.