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Chapter 12: The Collapse!

harass, and bully banks to provide mortgages to people
who previously did not qualify for loans. Between 1993
and 1999, more than two million low-income people
became new homeowners.
During her two-
year tenure, she set up a
These unhealthy loans
national grid of offices
sowed the seeds of an
staffed by attorneys and economic meltdown.
investigators who
e n f o r c e d a n t i -
discrimination laws against banks. Banks started to
make thousands of subprime loans and, in some cases,
without requiring a down payment. These unhealthy
loans sowed the seeds of an economic meltdown.
Politicians have spent years arguing that private
lenders created the housing bubble and that Fan and
Fred went along for the ride. The Securities and
Exchange Commission begs to differ. The SEC issued
a report showing how Fran and Fred made the crises
worse by degrading their underwriting standards to
increase their subprime loans to satisfy the Community
Reinvestment Act requirements.

Under pressure to meet government mandates,
Fan and Fred needed help. Help came in 1999 when
they teamed up with Countrywide Home Loans
Company, a company that specialized in a reduced
documentation loan program called the Fast and Easy
Loan. Angelo Mozilo, Countrywide’s founder, and
Fannie were business partners in the subprime mortgage
market. Countrywide found the customers while Fan
purchased the mortgages from Countrywide. As Fan
expanded its subprime loan purchases, the SEC alleges
that executives hid the risk level from investors.

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