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(1) Th e extent to which the underwriting guidelines prevent or inhibit the purchase
or securitization of mortgages for houses in mixed-use, urban center, and
predominantly minority neighborhoods and for housing for low-and moderate-
income families;
(2) Th e standards employed by private mortgage insurers and the extent to which
such standards inhibit the purchase and securitization by the enterprises of
mortgages described in paragraph (1); and
(3) Th e implications of implementing underwriting standards that—
(A) establish a downpayment requirement for mortgagors of 5 percent or 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 the date of the application for the mortgage.” 74
I could not fi nd a record of reports by Fannie and Freddie required under
this section of the act, but it would have been fairly clear to both companies, and to
HUD, what Congress wanted in asking for these studies. Prevailing underwriting
standards were inhibiting mortgage fi nancing for low and moderate income (LMI)
families, and would have to be substantially relaxed in order to meet the goals
of the Act. Whatever the motivation, HUD set out to assure that downpayment
requirements were substantially reduced (eventually they reached zero) and past
credit history became a much less important issue when mortgages were made
(permitting subprime mortgages to become far more common).
Until 1995, HUD enforced the temporary AH goals originally put in place
by the GSE Act. With the exception of the special aff ordable requirements, which
were small at this point, these goals were not burdensome. In the ordinary course of
their business, the GSEs seem to have bought enough mortgages made to borrowers
below the AMI to qualify for the 30 percent AH goal. In 1995, however, HUD raised
the LMI goal to 40 percent, applicable to 1996, and to 42 percent for subsequent
years. In terms of its eff ect on Fannie and Freddie, HUD’s most important move at
this time was to set a Special Aff ordable goal (low and very low income borrowers)
of 12 percent, which increased to 14 percent in 1997. Eff orts to fi nd loans to low or
very low income borrowers (80 percent and 60 percent of AMI, respectively) that did
not involve high risks would prove diffi cult. As early as November 1995, even before
the eff ect of these new and higher goals, Fannie’s staff had already recognized that
Fannie’s Community Homebuyer Program (CHBP), which featured a 97 percent
75
loan-to-value (LTV) ratio—i.e., 3 percent downpayment —was showing signifi cant
rates of serious delinquency that exceeded Fannie’s expected rates by 26percent in
origination year 1992, 93 percent in 1993 and 57 percent in 1994. 76
In 1995, continuing its eff orts to erode underwriting standards in order to
increase homeownership, HUD issued a policy statement entitled “Th e National
Homeownership Strategy: Partners in the American Dream.” Th e Strategy was
prepared by HUD, “under the direction of Secretary Henry G. Cisneros, in response

74 Id., Section 1354(a).
75 Fannie Mae, “Opening Doors with Fannie Mae’s Community Lending Products,” 1995, p.3.
76 Fannie Mae, Memo from Credit Policy Staff to Credit Policy Committee, “CHBP Performance,”
November 14, 1995, p.1.