Page 223 - TrumpsEconEra_Flat

Trump’s Economic Era

Adjustable rate mortgages begin with low-interest
rates, called teaser rates, and increase yearly according
to a fixed schedule. Alt-A loans (nicknamed liar loans)
are loans whereby bank officials do not ask borrowers
to verify credit information on their applications.
Negative amortization loans are loans whereby the
mortgagee borrows money with every monthly
payment—the payment does not cover all the interest
owed—so after five years or so, debtors owe more than
when they started. By the end of the decade almost 40%
of all U.S. mortgages, 25 million loans, were low-
quality loans. The
p r o l i f e r a t i o n o f
The subprime loans in subprime loans and the
the early 2000s caused
a housing bubble. low-interest rates in the
early 2000s caused a
housing bubble.

Besides putting pressure on banks to meet the
needs of low-income people, in 1992, Congress gave a
new affordable housing “mission” to Fannie Mae and
Freddie Mac, and authorized the Department of
Housing and Urban Development to impose lower
underwriting standards for the twins. Before this, Fan
and Fred were required to buy only prime mortgages,
but now Congress ordered them to meet quotas for
subprime loans. Eventually, Fan and Fred would buy
more than $1 trillion of subprime loans from banks,
representing about 40 percent of all mortgages.
In 1993, President Clinton teamed up with Rob-
erta Achtenberg, the assistant secretary of the
Department of Housing and Urban Development
(HUD), to increase ownership of homes in poor and
minority communities. Roberta began to threaten,

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