CRA Not to Blame for Housing Debacle

[Annie]

Lots to go around, but Bush was least of the culprits.

Long post, many links and videos:

http://theanchoressonline.com/2009/02/22/a-marginal-tax-rate-of-90/

Just the beginning:

I explained to [Congressman Jerry McNerney (D-Pleasanton)] that even people who make $150k in Northern Cal. are not “rich” and should not be taxed as if they were…I also expressed my concern that about half the people in the country now pay no income taxes, so there is overwhelming incentive for them to keep voting for democrats and therefore higher taxes for the rest of us. He told me that he thought tax rates should go up for the very rich and that the top marginal tax rate should be 90%. I couldn’t believe what I was hearing, so I asked in a voice that many in the room could hear if he really meant 90%, and he said yes. Several people asked me after my turn was over if they heard correctly what he said, and were amazed when I said yes.

I also asked how a congress that was very critical of republican ethics and vowed “change” could justify letting Rangel, Dodd, and Murtha keep their committee chairmanships with their obvious ethical issues. His response was that Republican’s ethics were worse because of their “unjustified aggressive war”.

This is just my small example of the anger and frustration of people in liberal Northern California.

Read it all, and then take a look at this NY Times story from TEN years ago:

Fannie Mae Eases Credit To Aid Mortgage Lending
by STEVEN A. HOLMES
Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
…
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”...

 

[Care4all]

Well, I think President Bush's initiative of Home Ownership was admirable, and do believe for the most part, that owning a home makes one take ownership in their community, moreso than if a renter.

But i would not give him a complete pass in this mess...seems like this whole thing rings of what can go wrong, will go wrong...and anyone with even a fingertip in it....did things wrongly....?

G.W. Bush on the Housing Boom - Oct. 2002




THE PRESIDENT: Thank you, all. Thanks, for coming. Well, thanks for the warm welcome. Thank you for being here today. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That’s what we want. This is - an ownership society is a compassionate society.

More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That’s a homeownership gap. It’s a - it’s a gap that we’ve got to work together to close for the good of our country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers that have created a homeownership gap.

I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families. (Applause.)

Some may think that’s a stretch. I don’t think it is. I think it is realistic. I know we’re going to have to work together to achieve it. But when we do our communities will be stronger and so will our economy. Achieving the goal is going to require some good policies out of Washington. And it’s going to require a strong commitment from those of you involved in the housing industry.
CONTINUED....
I told Mel Martinez I was serious about this initiative. We started talking about it and I said, well, you know, I’m the kind of fellow, I don’t like to lay out a goal and don’t mean it. I think it’s not - I don’t think it’s fair for the American people to be - to have a President or anybody else, for that matter, lay out a goal and just kind of say it, but don’t mean it. I mean it. And the good news is, Mel Martinez believes it and means it, as well. He’s doing a fine job of running HUD, and I’m glad he has joined my Cabinet. (Applause.)

CONTINUED...

All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I’m concerned. It’s part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it’s safe or not. It brings pride to people, it’s a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It’s a part of - it’s of being a - it’s a part of - an important part of America.

Homeownership is also an important part of our economic vitality. If - when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity - the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that’s important because it will help people find work.

Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it’s good for the pocketbook of the country, as well.

To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can’t make a down payment. They may be qualified. They may desire to buy a home, but they don’t have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can’t cross. And one way to address that is to have the federal government participate.

And so we’ve called upon Congress to set up what’s called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there’s a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.

Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. You may - we may have qualified home buyers, but if there’s no home to buy, this initiative isn’t going anywhere. And so one of the things that we’re going to - that I’m doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.)

Over the next five years the initiative will provide home builders and therefore home buyers with - home builders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for home buyers. It’s really important for us to understand that we can provide incentive for people to build homes where there’s a lack of affordable housing.

And we’ve got to set priorities. And one of the key priorities is going to be inner-city America. Good schools and affordable housing will help revitalize our inner cities.

CONTINUED...

And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that’s what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it’s important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they’re into their new home. It is a - it is a way to help us meet this dream of 5.5 million additional families owning their home.

I’m also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own.

These are some of the barriers that home owners face, potential home owners face, and this is what we intend to do about it. But like in a lot of our life, government can’t do everything. It’s impossible to provide every aspect of a national strategy, particularly in this case. And that’s why we need the help of private and nonprofit sectors in our country to help play a vital role in helping to meet the goal. Many of you here represent the nonprofit, as well as the private sectors of our economy and our country, and I want to thank you for your commitment.

Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be home owners. And what I’m talking about, I’m talking about your bankers and your brokers and developers, as well as members of faith-based community and community programs. And the response to the home owners challenge has been very strong and very gratifying. Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.

Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set.

Freddie Mae - Fannie Mae and Freddie Mac - I see the heads who are here; I want to thank you all for coming - (laughter) - have committed to provide more money for lenders. They’ve committed to help meet the shortage of capital available for minority home buyers.

Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin, I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It’s the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this office, he said, I promise you we will help, and he has, like many others in this room have done.

Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. Freddie Mac is also working with the Department of Defense to promote construction and financing for housing for men and women in the military.

There’s all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place. Corporate America has responded. As an example - only one of many examples - the good folks at Sears and Roebuck have responded by making a five-year, $100 million commitment to making homeownership and home maintenance possible for millions of Americans.

There have been other steps that are being taken to close the homeownership gap. And you’ve heard some of the stories here today, people much more eloquent than me, to talk about what’s taking place on the front line of meeting this national goal.

The non-profit groups are bringing homeownership to some of our most troubled communities. And as you know, I’m a strong advocate of what I call the faith-based initiative. And the reason I am is because I understand the universal call to love a neighbor like you’d like to be loved yourself, and that includes helping somebody find a home.

One such example is the Enterprise Foundation, a national non-profit organization that provides assistance to grassroots homeownership organizations. Because of their work, as one example, 185 affordable homes will be available in the Baltimore neighborhood that was once so crime-ridden that people had written it off. Revitalizing neighborhoods is a real possibility if people put their mind to it. And at the same time, you’re helping people own a home in America.

CONTINUED...

So I want to thank you all for coming. I want to thank you for your determination to help close the minority homeownership gap. It’s an incredibly important initiative for this country. See, America is a good and generous country. It’s a great place. Part of it was to make sure that the dream, the American Dream, the ability to come from anywhere in our society and say, I own this home, is a reality - can be achievable for anybody, regardless of their status, regardless of their - of whether or not they - whether or not they think the dream is meant for them.

I mean, we can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.

Again, I want to tell you, this is an initiative - as Mel will tell you, it’s an initiative that we take very seriously. We’re going to stay on it until we’re - until we achieve the goal. And as we all achieve the goal, we can look back and say, America is a better place for our hard work, our efforts and our desires for our fellow Americans to realize the greatness of our country.

Thank you for coming. May God bless your vision. May God bless America. (Applause.)

G.W. Bush on the Housing Boom - Oct. 2002 | Ron Paul .com

here is the act that president bush put out in 2003 on minority housing ownership program...

Consumer News - Home Buying: The American Dream Downpayment Act of 2003; Bill Signed By President Bush to help first time buyers; Consumer & Government Guides

more to read....

President Bush's homeownership plan | Community Banker | Find Articles at BNET







Then there is criticism of the President's push to do such and how he ignored or had our regulators ignore what was happening with the crazy loaning in housing.....

long full article at link...

Bush drive for home ownership fueled housing bubble - International Herald Tribune

But the story of how the United States got here is partly one of Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

From his earliest days in office, Bush paired his belief that Americans do best when they own their own homes with his conviction that markets do best when left alone. Bush pushed hard to expand home ownership, especially among minority groups, an initiative that dovetailed with both his ambition to expand Republican appeal and the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.

Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Bush chose to oversee them - an old school buddy - pronounced the companies sound even as they headed toward insolvency.

As early as 2006, top advisers to Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Bush and his team misdiagnosed the reasons and scope of the downturn. As recently as February, for example, Bush was still calling it a "rough patch."

The result was a series of piecemeal policy prescriptions that lagged behind the escalating crisis.

"There is no question we did not recognize the severity of the problems," said Al Hubbard, Bush's former chief economic adviser, who left the White House in December 2007. "Had we, we would have attacked them."

Looking back, Keith Hennessey, Bush's current chief economic adviser, said he and his colleagues had done the best they could "with the information we had at the time." But Hennessey did say he regretted that the administration had not paid more heed to the dangers of easy lending practices.

And both Paulson and his predecessor, John Snow, say the housing push went too far.

"The Bush administration took a lot of pride that home ownership had reached historic highs," Snow said during an interview. "But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost."

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security, a government retirement and disability benefits program. The housing market was a bright spot: Ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college.

 

[Ravi]

I doubt many people know or admit that the Republicans pushed through legislation to eliminate down payments.

But even that didn't cause the financial mess.

Poor black people ARE NOT the culprits no matter how many wish it to be so.

 

[Annie]

I doubt many people know or admit that the Republicans pushed through legislation to eliminate down payments.

But even that didn't cause the financial mess.

Poor black people ARE NOT the culprits no matter how many wish it to be so.

Weird, you just posted what I've been saying for days. Good show.

 

[dilloduck]

I doubt many people know or admit that the Republicans pushed through legislation to eliminate down payments.

But even that didn't cause the financial mess.

Poor black people ARE NOT the culprits no matter how many wish it to be so.

Is it those rich Canadians again ? Damn you Said !

 

[Toro]

I do not believe that the Republicans nor Bush are primarily responsible for this mess, though if we are keeping score, I do think that since the GOP are the bigger proponents of deregulation and deregulation was a significant cause of this debacle, then the Republicans are "more" responsible than the Democrats, who are not blameless either.

 

[Annie]

I do not believe that the Republicans nor Bush are primarily responsible for this mess, though if we are keeping score, I do think that since the GOP are the bigger proponents of deregulation and deregulation was a significant cause of this debacle, then the Republicans are "more" responsible than the Democrats, who are not blameless either.

I can't hope to debate you, economically. Just gut reaction says the above post is way wrong. On the other hand, no doubt in my mind that Bush did way more to hurt economy than the 700kb he is credited with, in spite of his only spending 350kb of it.

 

[Toro]

More

Assume arguendo that CRA legislation forced banks into making high risk, ill advised loans. And, let’s further assume a huge percentage of these government mandated mortgages have gone bad. The buyers who could not legitimately afford these homes or otherwise qualify for other mortgages have defaulted, and these houses are either in default, foreclosure or REOs.

What would this alternative nation look like?

Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending:

1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median;

2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up.

3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median.

4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates;

5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank;

6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties;

7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims.

So much for THAT thought experiment: None of these outcomes have occurred.

Zero.

In reality, the precise opposite of what a CRA-induced collapse should have looked like is what occurred. The 345 mortgage brokers that imploded were non-banks, not covered by the CRA legislation. The vast majority of CRA covered banks are actually healthy.

The biggest foreclosure areas aren’t Harlem or Chicago’s South side or DC slums or inner city Philly; Rather, it hs been non-CRA regions — the Sand States — such as southern California, Las Vegas, Arizona, and South Florida. The closest thing to an inner city foreclosure story is Detroit – and maybe the bankruptcy of GM and Chrysler actually had something to do with that.

CRA Thought Experiment | The Big Picture

 

[edthecynic]

The CRA most assuredly played a major roll in this mess as it was the CRA that directed Freddy and Fanny to package these mortgages into securities and put them on the market. It was that direction that enabled he bubble to build.

You CON$ just make this crap up out of thin air!
CRA loans were for 1% over prime, and while that technically made them subprime loans, they were not the high interest, high gain, high risk ARM loans that would be part of the security packages that caused the problems. Furthermore, if the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped, so CRA ARMs were adjusted DOWN making them even more unlikely to be part of the packages.

 

[PoliticalChic]

More

Assume arguendo that CRA legislation forced banks into making high risk, ill advised loans. And, let’s further assume a huge percentage of these government mandated mortgages have gone bad. The buyers who could not legitimately afford these homes or otherwise qualify for other mortgages have defaulted, and these houses are either in default, foreclosure or REOs.

What would this alternative nation look like?

Given the giant US housing boom and bust, this thought experiment would have several obvious and inevitable outcomes from CRA forced lending:

1) Home sales in CRA communities would have led the national home market higher, with sales gains (as a percentage) increasing even more than the national median;

2) Prices of CRA funded properties should have risen even more than the rest of the nation as sales ramped up.

3) After the market peaked and reversed, Distressed Sales in CRA regions should lead the national market downwards. Foreclosures and REOS should be much higher in CRA neighborhoods than the national median.

4) We should have reams of evidence detailing how CRA mandated loans have defaulted in vastly disproportionate numbers versus the national default rates;

5) CRA Banks that were funding these mortgages should be failing in ever greater numbers, far more than the average bank;

6) Portfolios of large national TARP banks should be strewn with toxic CRA defaults; securitizers that purchased these mortgages should have compiled list of defaulted CRA properties;

7) Bank execs likely would have been complaining to the Bush White House from 2002-08 about these CRA mandates; The many finance executives who testified to Congress, would also have spelled out that CRA was a direct cause, with compelling evidence backing their claims.

So much for THAT thought experiment: None of these outcomes have occurred.

Zero.

In reality, the precise opposite of what a CRA-induced collapse should have looked like is what occurred. The 345 mortgage brokers that imploded were non-banks, not covered by the CRA legislation. The vast majority of CRA covered banks are actually healthy.

The biggest foreclosure areas aren’t Harlem or Chicago’s South side or DC slums or inner city Philly; Rather, it hs been non-CRA regions — the Sand States — such as southern California, Las Vegas, Arizona, and South Florida. The closest thing to an inner city foreclosure story is Detroit – and maybe the bankruptcy of GM and Chrysler actually had something to do with that.

CRA Thought Experiment | The Big Picture

Selecting one item, the CRA out of the plethora of policies instituted by the Democrats is certainly one way of winning the argument. It is akin to the Global Warming fanatics selecting a short time period for their 'proof.'

Look at the incrimental progression toward financial crisis:

"For as homeownership grew, so did the rate of foreclosures. From just 2 percent of commercial bank mortgages in 1922, they rose to 9 percent in 1926 and to 11 percent in 1927. Soon after the October 1929 Wall Street crash, the housing market began to collapse: panicked depositors withdrew money from their accounts, prompting bank runs; the banks ran out of capital and stopped making loans; and the mortgage market seized up. Homeowners, who in that era typically had short-term mortgages that required several refinancings before being paid off, suddenly couldn’t find new loans. Defaults exploded—by 1933, some 1,000 homes were foreclosing every day.

The feds responded to the crisis with the Home Owners’ Loan Corporation (HOLC), a New Deal bailout program that made government an even bigger player in the housing market. The HOLC eventually received 1.9 million applications for mortgages and approved 1 million. Despite the more favorable terms that the HOLC offered, however, about one-fifth of the new mortgages defaulted, a failure rate that would sink a private-sector bank.
The Depression-era federal government created many other institutions to fix flaws in the mortgage market: the Federal Home Loan Bank system to provide a stable source of funds for banks; the Federal Housing Administration (FHA) to insure mortgages; the Federal National Mortgage Association (later known as Fannie Mae) to purchase those insured mortgages; and the Federal Savings and Loan Insurance Corporation to prevent future bank runs.

By the end of the Great Depression, the U.S. government had become the dominant force in the mortgage market. Politicians could now use that regulated market to advance their own policy agendas—or their careers. Many housing experts of the time warned against this politicization, anticipating what was to come. Liberal housing advocate Charles Abrams, for example, publicly worried that as the Depression lifted, yet more new government plans to encourage homeownership would lure unsuspecting and unqualified lower-income families into the housing market. The foundation of a stable economic system, Abrams argued, wasn’t a large percentage of homeowning families, as Hoover contended; it was “how sound the ownership is.” But as homeownership grew, political pressure to allow riskier loans increased, too—exactly what Abrams had cautioned against.

Under pressure to keep meeting housing demand, the government began loosening its mortgage-lending standards—cutting the size of required down payments, approving loans with higher ratios of payments to income, and extending the terms of mortgages. By attracting riskier home buyers, these moves provoked a surge in foreclosures on government-backed mortgages. The failure rate on FHA-insured loans spiked fivefold from 1950 to 1960, according to a 1970 National Bureau of Economic Research study, while the failure rate on mortgages made through the Veterans Administration nearly doubled over the same period. By contrast, the foreclosure rate of conventional mortgages barely increased, since many traditional lenders had maintained stricter underwriting standards…

The FHA’s urban-loan debacle of the 1960s and early seventies, its most ruinous lending mistake yet: politicians in both parties argued that extending the American dream of homeownership to poor and to immigrantswould stabilize urban communities and prevent further violence. So in 1968, the federal government passed a law giving poor families FHA-insured loans that required down payments of as little as $250. Not urban uplift but urban nightmare followed. In the end, the government absorbed an estimated $1.4 billion in losses nationwide.
The meltdown couldn’t have happened without Washington’s unexamined assumption that homeownership would transform the lives of low-income buyers in positive ways. “The program could not work because it tried to solve a problem of wealth creation through debt creation,” Harvard historian Louis Hyman recently observed, aptly comparing the FHA scandals with today’s subprime crisis.
Next the government’s spur to action was claims by housing and civil rights activists that banks were “redlining”—intentionally not lending in minority neighborhoods. Studies by advocacy groups and local newspapers purported to prove that redlining was real. Black neighborhoods, the studies showed, received far fewer mortgages than mostly white areas did, and black applicants had their loans shot down more often than whites with similar incomes. Banks and academic experts responded that the studies didn’t include information about the creditworthiness of borrowers in black neighborhoods, a more important factor than income. Nevertheless, the media worked themselves into a frenzy, pillorying government officials who dared object to the studies’ conclusions.

a. Congress passed a bill in 1975 requiring banks to provide the government with information on their lending activities in poor urban areas. Two years later, it passed the Community Reinvestment Act (CRA), which gave regulators the power to deny banks the right to expand if they didn’t lend sufficiently in those neighborhoods. In 1979 the FDIC used the CRA to block a move by the Greater NY Savings Bank for not enough lending.

b. In 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income.

c. In 1987, Acorn led a coalition of advocacy groups calling for industry-wide changes in lending standards. Among the demanded reforms were the easing of minimum down-payment requirements and of the requirement that borrowers have enough cash at a closing to cover two to three months of mortgage payments (research had shown that lack of money in hand was a big reason some mortgages failed quickly).

d. ACORN then attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers.

e. Clinton Administration housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs.

f. Shortly after Cisneros announced his plan, Fannie Mae and Freddie Mac agreed to begin buying loans under new, looser guidelines. Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, so long as they were current on rent and utilities payments. Freddie Mac also said that it would begin counting income from seasonal jobs and public assistance toward its income minimum, despite the FHA disaster of the sixties.

g. Freddie Mac began an “alternative qualifying” program with the Sears Mortgage Corporation that let a borrower qualify for a loan with a monthly payment as high as 50 percent of his income, at a time when most private mortgage companies wouldn’t exceed 33 percent. The program also allowed borrowers with bad credit to get mortgages if they took credit-counseling classes administered by Acorn and other nonprofits. Subsequent research would show that such classes have little impact on default rates.

h. Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA “among the most egregious redliners.”

i. Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown.

j. A 1998 sales pitch by a Bear Stearns managing director advised banks to begin packaging their loans to low-income borrowers into securities that the firm could sell. Forget traditional underwriting standards when considering these loans, the director advised. For a low-income borrower, he continued in all-too-familiar terms, owning a home was “a near-sacred obligation. A family will do almost anything to meet that monthly mortgage payment.” Bunk, says Stan Liebowitz, a professor of economics at the University of Texas: “The claim that lower-income homeowners are somehow different in their devotion to their home is a purely emotional claim with no evidence to support it.”

k. Any concern was quickly dismissed. When in early 2000 the FDIC proposed increasing capital requirements for lenders making “subprime” loans—loans to people with questionable credit, that is—Democratic representative Carolyn Maloney of New York told a congressional hearing that she feared that the step would dry up CRA loans. Her fellow New York Democrat John J. LaFalce urged regulators “not to be premature” in imposing new regulations.

l. In July 1999, HUD proposed new levels for Fannie Mae’s and Freddie Mac’s low-income lending; in September, Fannie Mae agreed to begin purchasing loans made to “borrowers with slightly impaired credit”—that is, with credit standards even lower than the government had been pushing for a generation.

m. In 2004 Congress pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

n. In October 1994, Fannie Mae head James Johnson had reminded a banking convention that mortgages with small down payments had a much higher risk of defaulting. (A Duff & Phelps study found that they were nearly three times more likely to default than conventional mortgages.) Yet the very next month, Fannie Mae said that it expected to back loans to low-income home buyers with a 97 percent loan-to-value ratio—that is, loans in which the buyer puts down just 3 percent—as part of a commitment, made earlier that year to Congress, to purchase $1 trillion in affordable-housing mortgages by the end of the nineties. According to Edward Pinto, who served as the company’s chief credit officer, the program was the result of political pressure on Fannie Mae trumping lending standards.

o. In 1992, the Boston Fed produced an extraordinary 29-page document that codified the new lending wisdom. Conventional mortgage criteria, the report argued, might be “unintentionally biased” because they didn’t take into account “the economic culture of urban, lower-income and nontraditional customers.” Lenders should thus consider junking the industry’s traditional income-to-payments ratio and stop viewing an applicant’s “lack of credit history” as a “negative factor.” Further, if applicants had bad credit, banks should “consider extenuating circumstances”—even though a study by mortgage insurance companies would soon show, not surprisingly, that borrowers with no credit rating or a bad one were far more likely to default. If applicants didn’t have enough savings for a down payment, the Boston Fed urged, banks should allow loans from nonprofits or government assistance agencies to count toward one. A later study of Freddie Mac mortgages would find that a borrower who made a down payment with third-party funds was four times more likely to default, a reminder that traditional underwriting standards weren’t arbitrary but based on historical lending patterns.

p. The Congressional Hispanic Caucus launched Hogar in 2003, an initiative that pushed for easing lending standards for immigrants, including touting so-called seller-financed mortgages in which a builder provided down-payment aid to buyers via contributions to nonprofit groups. As a result, mortgage lending to Hispanics soared. And today, in districts where Hispanics make up at least 25 percent of the population, foreclosure rates are now nearly 50 percent higher than the national average, according to a Wall Street Journal analysis.

q. Republicans and Democrats, meanwhile, have scrambled to reignite the housing market through ill-conceived tax credits and renewed federal subsidies for mortgages, including the Obama administration’s mortgage bailout plan, which recalls the New Deal’s HOLC. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost.

Our praiseworthy initial efforts—to eliminate housing discrimination and provide all Americans an equal opportunity to buy a home—were eventually turned on their heads by advocates and politicians, who instead tried to ensure equality of outcomes."

Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009

 

[Toro]

PoliticalChic

No one is arguing that the government did not have an effect on the mortgage market. You simply cannot be as big as the government was in the mortgage market and not have some effect.

But again, here are a few simple facts

- homes guaranteed by Freddie and Fannie have fallen less in price and have defaulted at a lower rate.
- homes owned in minority communities rose at a lesser rate and have had a lesser rate of defaults than those in basically white and middle to upper class neighborhoods.

Thus, pinning the GSEs or other minority programs as the cause of this debacle, or even a primary cause, does not wash out with what has actually occurred in the mortgage and housing markets.

This debacle occurred because middle and upper class people thought they could speculate in homes and use their houses as ATMs, levering up their balance sheets to do so. Expanding home ownership certainly had some effect but is dwarfed by the speculation that occurred in the better neighborhoods.

 

[PoliticalChic]

PoliticalChic

No one is arguing that the government did not have an effect on the mortgage market. You simply cannot be as big as the government was in the mortgage market and not have some effect.

But again, here are a few simple facts

- homes guaranteed by Freddie and Fannie have fallen less in price and have defaulted at a lower rate.
- homes owned in minority communities rose at a lesser rate and have had a lesser rate of defaults than those in basically white and middle to upper class neighborhoods.

Thus, pinning the GSEs or other minority programs as the cause of this debacle, or even a primary cause, does not wash out with what has actually occurred in the mortgage and housing markets.

This debacle occurred because middle and upper class people thought they could speculate in homes and use their houses as ATMs, levering up their balance sheets to do so. Expanding home ownership certainly had some effect but is dwarfed by the speculation that occurred in the better neighborhoods.

What required me to post the timeline is that in several threads you have claimed that the GOP is more responsible for the meltdown than the Dems.

Clear from the post, it is mostly Dem policy, plus GOP greed and desire for electoral victory.

 

[Toro]

Again, if that were the case, then it would have been the poor neighborhoods which would have seen, in general, the fastest increases in home prices, the greatest declines in prices and the higher rate of foreclosure. That has not happened, however.

 

[Paulie]

Why try and pin it to a certain party?

This mess knows no political boundaries. It was the result of banks IN GENERAL being too lenient on their lending requirements, and people IN GENERAL being too irresponsible with their finances.

Too much debt is too much debt, period. As Toro said, the CRA had nothing to do with the middle to upper class people over-leveraging themselves to speculate in something they obviously thought would never peak.

 

[Ravi]

I really, really don't understand trying to pin this mess on the poor. It's just inconceivable that bad loans to poor people could bring the economy down. Anyone that believes it so is just stupid, IMO.

 

[Toro]

I would generally agree that the financial debacle occurred because of events outside of the political arena.

 

[Care4all]

Again, if that were the case, then it would have been the poor neighborhoods which would have seen, in general, the fastest increases in home prices, the greatest declines in prices and the higher rate of foreclosure. That has not happened, however.

good analysis and sound logic!

care

 

[Full-Auto]

Again, if that were the case, then it would have been the poor neighborhoods which would have seen, in general, the fastest increases in home prices, the greatest declines in prices and the higher rate of foreclosure. That has not happened, however.

Not quite true. Just because they lowered standards does not mean they were eliminated.

The adjustments to the credit scores wasnt enough to provide the stimulus you appearently believe should have occurred.

 

[Toro]

Again, if that were the case, then it would have been the poor neighborhoods which would have seen, in general, the fastest increases in home prices, the greatest declines in prices and the higher rate of foreclosure. That has not happened, however.

Not quite true. Just because they lowered standards does not mean they were eliminated.

The adjustments to the credit scores wasnt enough to provide the stimulus you appearently believe should have occurred.

What I am saying is that if the minority programs had a disproportionate effect on the housing markets and the subsequent collapse, as is being alleged, there would have been disproportionate effects in minority and lower-income neighborhoods. If disproportionate amounts of credit came flooding into these neighborhoods, then there would have been disproportionate increases and declines in housing prices and disproportionate amount of foreclosures in these neighborhoods.

But that did not happen.

Instead, the largest effects were and still are in the suburbs and the middle to upper income neighborhoods, particularly in the sunbelt. The worst effects were in Florida, Arizona and California as well as Nevada. The first three have historically been more boom/bust because people speculate more in these states as people buy a dream - or perceive others as wanting to buy a dream - of living in warm, sunny climates. Nevada became more prominent as the state fits this profile and Las Vegas has grown larger.

Not many poor black people buying six condos speculating on the Strip.

 

[Full-Auto]

Again, if that were the case, then it would have been the poor neighborhoods which would have seen, in general, the fastest increases in home prices, the greatest declines in prices and the higher rate of foreclosure. That has not happened, however.

Not quite true. Just because they lowered standards does not mean they were eliminated.

The adjustments to the credit scores wasnt enough to provide the stimulus you appearently believe should have occurred.

What I am saying is that if the minority programs had a disproportionate effect on the housing markets and the subsequent collapse, as is being alleged, there would have been disproportionate effects in minority and lower-income neighborhoods. If disproportionate amounts of credit came flooding into these neighborhoods, then there would have been disproportionate increases and declines in housing prices and disproportionate amount of foreclosures in these neighborhoods.

But that did not happen.

Instead, the largest effects were and still are in the suburbs and the middle to upper income neighborhoods, particularly in the sunbelt. The worst effects were in Florida, Arizona and California as well as Nevada. The first three have historically been more boom/bust because people speculate more in these states as people buy a dream - or perceive others as wanting to buy a dream - of living in warm, sunny climates. Nevada became more prominent as the state fits this profile and Las Vegas has grown larger.

Not many poor black people buying six condos speculating on the Strip.

As I explained, standards were lowered, but not to the extent to cause what you said should have happened.