Guess who’s goal this was? You might be surprised:

>>

"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 home ownership 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 home ownership 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 . . .

Home ownership 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."

- George W. Bush, U.S. President, October 15, 2002 1:55 P.M.

>

Last week, we mentioned this speech from 2004. Fast forward to today’s excerpt, from an even earlier, 2002 speech.

Why keep bringing these up? Because it derails the false argument brewing amongst those on the right who blame the 1977 CRA or the 1938 Fannie Mae for the current housing and credit problem. I have zero patience for this nonsense, and am unafraid to call people on it.

Nothing in any of these Bush speeches that pushed for more lending to minorities and increased lower income home ownership caused the problem. Neither did any similar Clinton speeches. Nor did related the legislation related to the Bush speeches, nor did the CRA, nor Fannie Mae or Freddie Mac. Indeed, none of these actions required the sort of reckless lending that we saw from 2002-2007.

Understand this simple fact: In an ultra-low rate environment, where prices are appreciating rapidily, and mortgaes are being securitized, ALL THAT MATTERS IS THAT THE BORROWER NOT DEFAULT IN 90 days (or 6 Months). The goal was to make a loan that did not default in that period of time, it cannot be put back to the originator.

As a mortgage salesman, you only lose your a fee if a borrower defaults within 3 or 6 months. What do you do to maximize your returns? The best way to do that — to put people in houses that would not default in 90 days — was the 2/28 ARM mortgages. Cheap teaser rates for 24 months, then the big reset. By then, it was no longer your problem.

Can you grasp what a monumental change this was? Instead of making sure that borrowers could pay back ALL OF THE 30 YEAR FIXED MORTGAGE, you only had to find people who could afford the teaser rate for a a few months. THIS WAS AN ENORMOUS AND UNPRECEDENTED SHIFT IN LENDING.

This is the key to the hosuing boom and bust, anbd ultimately underlies the entire credit freeze. And, it would not have been possible without the Greenspan ultra-low rates, which made the teaser portion (the "2" of the 2/28) of these mortgages so attractive.

~~~

Those who continue to blame the CRA, Fannie Mae, etc. reveal their fundamental misunderstanding of how credit operates in general, what the financing process was like from 2002-07, and how this situation came to pass. Or worse, they understand it, and choose to lie about it anyway for partisan political purposes.

You either understand these simple facts, or you don’t. If you cannot
comprehend this, well, then, I am at a loss as to what that says about your cognitive functioning. But if you understand this, but spit out the nonsense anyway, then you are merely a partisan with no respect for the truth.

And that seems to be the main people
blaming the CRA and Fannie/Freddie for the credit/housing crisis — those folks who either can’t think — or wont.

>

>

Source:
President Hosts Conference on Minority Homeownership
October 15, 2002 1:55 P.M. EDT
http://www.whitehouse.gov/news/releases/2002/10/20021015-7.html

Category: Politics, Taxes and Policy, UnScience

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

149 Responses to “Goal: Increase Minority Homeowners by 5.5 Million in a Decade”

  1. Howard says:

    I’m one of the shitheads who for a while worked for CountryWide soliciting the loans. I only stopped when I realized WTF I was actually doing. What you miss is the overall climate of what was going on. CountryWide was being fried by Congress reps to lend more and more and we felt that pressure. We were not only selling to make big commissions, but to stay in business. The climate, which includes media approval, political approval, and peer approval simply meant that we found ways to “do it” and whatever way we chose was approved. We had a letter from Congressman Frank praising our sales; another from the White House; I think we even had one from the Comptroller of the Currency (whatever the fuck that is). Barry, every part of the government was pressuring us and praising us for what we were doing. But anyone with the background who looked would have realized we were selling stuff to people who couldn’t possibly pay stuff off. Even though the default rate was very high, Congress held a hearing demanding more lending. The overall climate could not have existed without CRA, the House committees, Krugman, (loved us) and the rest of the apparatus together with the rest of the enabling legislation.

  2. SPECTRE of Deflation says:

    VJ,

    Did Bill Clinton really balance the budget ?
    PLEASE READ THE WHOLE QUESTION BEFORE YOU RESPOND !
    1. In 1994 Newt Gingrich , who was the Republican Speaker of the House, led what he called the Republican Revolution.

    2. Part of that was his “Contract With America” which DEMANDED a balanced budget.

    3. Clinton was so opposed to this proposed legislation that the federal government SHUT DOWN temporarily over the conflict.

    Bearing this in mind is it actually fair to say that CLINTON balanced the budget ?

  3. VJ says:

    Howard,

    CountryWide was being fried by Congress reps to lend more and more and we felt that pressure

    Good trick given that mortgage brokerage was an unregulated industry.

    Oh, and the CRA did not apply to non-federally-regulated institutions.
    .

  4. Hey, Barry. You know I love your stuff but I’m surprised at the tone of this post. Taking a stand is one thing (and your best attribute) but calling people who don’t agree as either “liars” or lacking in cognitive function (“morons”) isn’t that far off from Bush’s 9/11 “with us or against us” position.

    At the risk of sounding like a moron, I have to both agree and disagree with you here.

    Agree – Mortgage Salesman are definitely the ones that started this entire problem. Once the “pioneers” of 2/28 ARM lending started cashing in bonuses, it spread like a wildfire through the entire industry and they all jumped in. Minorities and low-income earners didn’t have a chance.

    Agree – CRA had nothing to do with this

    Agree – Greenspan rates made much of this possible…though I would categorize this as “unintended consequences”.

    Agree – Clinton/Bush are not to blame for general policy and feel good home ownership comments.

    Disagree – Fannie/Freddie not to blame.

    In my opinion, they were just as much to blame for buying up these mortgages, re-packaging and selling them off.

    Had they done some DD and not been willfully blind to the flawed 2/28 ARM stream that was providing execs with bonuses beyond belief, they would have stop buying/securitizing mortgages.

    This would have choked off the primary mortgage market, which would not have had enough liquidity to continue with the 2/28 ARM practice.

    In fact, I blame Fannie/Freddie much more than anybody else in the process. I don’t have high expectations from some mortgage broker in Daytona Beach looking to make some fast bucks – but I sure as hell expected a lot more from Fannie/Freddie.

    Regards,
    George

  5. SPECTRE of Deflation says:

    VJ, the Internet is your friend once you learn how to look things up even if you don’t like the answer. LOL! Catch a clue already:

    No, Bill Clinton Didn’t Balance the Budget

    CATO think tank
    October 8, 1998

    No, Bill Clinton Didn’t Balance the Budget

    by Stephen Moore

    Stephen Moore is director of fiscal policy studies at the Cato Institute.

    Let us establish one point definitively: Bill Clinton didn’t balance the budget. Yes, he was there when it happened. But the record shows that was about the extent of his contribution.

    Many in the media have flubbed this story. The New York Times on October 1st said, “Clinton balances the budget.” Others have praised George Bush. Political analyst Bill Schneider declared on CNN that Bush is one of “the real heroes” for his willingness to raise taxes — and never mind read my lips. (Once upon a time, lying was something that was considered wrong in Washington, but under the last two presidents our standards have dropped.) In any case, crediting George Bush for the end of the deficit requires some nifty logical somersaults, since the deficit hit its Mount Everest peak of $290 billion in St. George’s last year in office.

    And 1993 — the year of the giant Clinton tax hike — was not the turning point in the deficit wars, either. In fact, in 1995, two years after that tax hike, the budget baseline submitted by the president’s own Office of Management and Budget and the nonpartisan Congressional Budget Office predicted $200 billion deficits for as far as the eye could see. The figure shows the Clinton deficit baseline. What changed this bleak outlook?

    Newt Gingrich and company — for all their faults — have received virtually no credit for balancing the budget. Yet today’s surplus is, in part, a byproduct of the GOP’s single-minded crusade to end 30 years of red ink. Arguably, Gingrich’s finest hour as Speaker came in March 1995 when he rallied the entire Republican House caucus behind the idea of eliminating the deficit within seven years.

    We have a balanced budget today that is mostly a result of 1) an exceptionally strong economy that is creating gobs of new tax revenues and 2) a shrinking military budget. Social spending is still soaring and now costs more than $1 trillion.

    Skeptics said it could not be done in seven years. The GOP did it in four.

    Now let us contrast this with the Clinton fiscal record. Recall that it was the Clinton White House that fought Republicans every inch of the way in balancing the budget in 1995. When Republicans proposed their own balanced-budget plan, the White House waged a shameless Mediscare campaign to torpedo the plan — a campaign that the Washington Post slammed as “pure demagoguery.” It was Bill Clinton who, during the big budget fight in 1995, had to submit not one, not two, but five budgets until he begrudgingly matched the GOP’s balanced-budget plan. In fact, during the height of the budget wars in the summer of 1995, the Clinton administration admitted that “balancing the budget is not one of our top priorities.”

    And lest we forget, it was Bill Clinton and his wife who tried to engineer a federal takeover of the health care system — a plan that would have sent the government’s finances into the stratosphere. Tom Delay was right: for Clinton to take credit for the balanced budget is like Chicago Cubs pitcher Steve Trachsel taking credit for delivering the pitch to Mark McGuire that he hit out of the park for his 62nd home run.

    The figure shows that the actual cumulative budget deficit from 1994 to 1998 was almost $600 billion below the Clintonomics baseline. Part of the explanation for the balanced budget is that Republicans in Congress had the common sense to reject the most reckless features of Clintonomics. Just this year, Bill Clinton’s budget proposed more than $100 billion in new social spending — proposals that were mostly tossed overboard. It’s funny, but back in January the White House didn’t seem too concerned about saving the surplus for “shoring up Social Security.”

    Now for the bad news for GOP partisans. The federal budget has not been balanced by any Republican spending reductions. Uncle Sam now spends $150 billion more than in 1995. Over the past 10 years, the defense budget, adjusted for inflation, has been cut $100 billion, but domestic spending has risen by $300 billion.

    We have a balanced budget today that is mostly a result of 1) an exceptionally strong economy that is creating gobs of new tax revenues and 2) a shrinking military budget. Social spending is still soaring and now costs more than $1 trillion. Is this the kind of balanced budget that fiscal conservatives want? A budget with no deficit, but that funds the biggest government ever?

    So the budget is balanced, but now comes the harder part: cutting the budget.

  6. JoJo says:

    A rather timely piece in McClatchy today that supports BR’s points. Some tidbits:

    * Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year [2006].

    * Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

    * Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent…

    * Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

    ‘Private sector loans, not Fannie or Freddie, triggered crisis’

  7. Bill says:

    You are right about many of the factors that contributed to the problem but missed the boat with respect to the CRA.

    CRA was a fundamental change in attitude that permeated the political system, changing the lending criteria from being able to service a loan to being eligible for a loan based on location. The problem was compounded by the Clinton administration which made it tougher for banks not to do as D.C. wanted. Add to that nutsy FED actions, a disconnect between granting loans and bank liability, poor oversight/regulation, etc. etc. and BOOM!

    CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started. If you don’t get that then you have clearly missed the boat.

  8. VJ says:

    SPECTRE,

    Did Bill Clinton really balance the budget ?

    Yes.

    1. In 1994 Newt Gingrich , who was the Republican Speaker of the House, led what he called the Republican Revolution.

    The election was in November of 1994. The Republican Majority took control in January of 1995. They had no major budget legislation signed into law by the President until after they shut the government down for the second time in February of 1996. The Republican Congressional Majority never submitted federal budget legislation as required by law but instead modified the White House proposed legislation.

    The federal budget was in NET surplus in the Summer of 1994.

    2. Part of that was his ‘Contract With America’ which DEMANDED a balanced budget.

    The Contract On America passed the House and DIED in the Senate.

    3. Clinton was so opposed to this proposed legislation that the federal government SHUT DOWN temporarily over the conflict.

    President Clinton announced he would not sign into law their RightWing legislative agenda, and if the American people wanted that agenda, they would have to get themselves another President. They decided to reelect him instead.
    .

  9. JoJo says:

    Link to ‘Private sector loans, not Fannie or Freddie, triggered crisis’

    http://www.mcclatchydc.com/251/story/53802.html

  10. SPECTRE of Deflation says:

    VJ, not being able to see the forest for the trees comes to mind when I think of you. It’s all there on the Internet if you could stand the truth. You can’t. I keep seeing one and two sentence rebutals which is pure BS, but it’s all you have. Sad really!

  11. VJ says:

    SPECTRE,

    VJ, the Internet is your friend…

    Only if one knows how to separate opinion from news and gibberish from fact.

    Stephen Moore is director of fiscal policy studies at the Cato Institute.

    And in 1993, as President Clinton’s tax & budget legislation was making it’s way through Congress, Stephen Moore predicted that “Clinton’s plan will torpedo the economy“.

    Moore is a perpetual RightWing loser that has been proven wrong so many times I’ve lost count.
    .

  12. CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started. If you don’t get that then you have clearly missed the boat.

    Posted by: Bill | Oct 14, 2008 2:46:38 PM

    Please, sir. Talk about projection. You are one of those people who speak as if legalized racial and religious persecution and discrimination has never existed in the United States. As if all of those real estate deeds which contained covenants against the property being sold to Jews or Blacks was all just a big fairy tale. As if Jim Crow and segregation never existed. As if any type of financial and employment discrimination never existed.

    Please.

  13. OhNoNotAgain says:

    Howard,

    I’ll just go ahead and be ashamed for you for writing that bunch of claptrap. My guess is that a) You never worked at Countrywide, and b) You’re a very bad liar.

    And Spectre, quoting Stephen Moore is like quoting Rush Limbaugh. That guy has zero credibility and is nothing but a hack for the Republicans. The Club for Growth has been a case of VD that this country can’t seem to shake.

  14. Joe D. says:

    Just because the Bush administration endorsed higher rates of home ownership does not mean that the mentioned laws and organizations did not help facilitate the problem.

  15. cynicalgirl says:

    DW, you are correct about wages. While housing costs were rising 20% per year, core inflation and wage increases were only around 3% per year, making homes unaffordable for most people. The way around it was to create exotic loans to create the illusion that the monthly payment was affordable. Until the reset.

    The claim that somehow the drop in real estate can be contained is what bothers me. The only way for that to happen is if everyone gets a really big raise. And that’s unlikely. Until prices drop or wages eventually catch up, the median home is not affordable for the median wage earner.

  16. c.gray says:

    GlASS STEAGALL

    Glass-Steagall has almost….ALMOST…as much to do with the current crisis as the CRA. Which is to say, practically nada.

    What do the institutions at the epicenter of the current crisis, such as Home Rock, AIG Financial, Fannie Mae, Fortis and various German Landesbank, all have in common? They were never regulated by the CRA OR by Glass-Steagall. What does Lehman Brothers have in common with the other Big 5 Wall Street investment banks swirling the drain today? They never moved into insurance or commercial banking after Glass-Steagall’s repeal.

    When will the robots on the USA political right or left pushing the CRA or Glass-Steagall, respectively, notice that they are both pushing fairy tales in an effort to obtain political mileage out of the current crisis, truth be damned? Probably never.

  17. there are many, similiar, stories, like this: “I’m one of the shitheads who for a while worked for CountryWide soliciting the loans. I only stopped when I realized WTF I was actually doing. What you miss is the overall climate of what was going on. CountryWide was being fried by Congress reps to lend more and more and we felt that pressure. We were not only selling to make big commissions, but to stay in business. The climate, which includes media approval, political approval, and peer approval simply meant that we found ways to “do it” and whatever way we chose was approved. We had a letter from Congressman Frank praising our sales; another from the White House; I think we even had one from the Comptroller of the Currency (whatever the fuck that is). Barry, every part of the government was pressuring us and praising us for what we were doing. But anyone with the background who looked would have realized we were selling stuff to people who couldn’t possibly pay stuff off. Even though the default rate was very high, Congress held a hearing demanding more lending. The overall climate could not have existed without CRA, the House committees, Krugman, (loved us) and the rest of the apparatus together with the rest of the enabling legislation.

    Posted by: Howard | Oct 14, 2008 2:22:41 PM

    from the people, actually, at the levers of the Machine while this was transpiring, that give much, anecdotal, credence to the idea that this whole Episode was as scripted as “Friends”.

    Sadly, this: Thank-you, Winston Munn. (nice post Winnie)

    While the lizard brains argue over which of the plutocrats are responsible, the plutocrats set themselves up more power to steal our wallets and our souls.

    We need a true revolution. A rejection of everything Washington and Wall Street. This New World looks rather like the Old. Perhaps a new Reign of Terror might do the trick.

    Posted by: Donkei | Oct 14, 2008 1:17:48 PM

    is, to me, our only real option. and, I think that we need to leaven our understanding of it by reflecting on this: “You did this to yourselves.

    Accept it.

    And hope that the people who are cleaning up this mess are smarter than you are. I’d recommend listening a lot to the ones who were warning you years ago that you were headed over a cliff. You were wrong. It’s time to humble yourselves, start listening to people who were right, and to start learning something.

    If you want to make things better, you have to first stop pretending you’re the victims here. You weren’t. You were largely left to your own devices, and this is what you did. Nice work.

    Posted by: anonymiss | Oct 14, 2008 12:43:00 PM

    for the first ‘Reign of Terror’ may just be that struggle, with ourselves, over the Reality of how horribly we’ve allowed ourselves to be misled, and lied to. Thinking/Hoping that we could outsource that, our Responsibility as Citizens, as well..

  18. Mike G says:

    CRA and its underlying philosophy of granting loans on the basis of location and not ability to handle the loan is where is all started.

    LOL! After being called on your bull that the CRA caused the credit crisis, you concede that CRA may have been responsbile for a negligible proportion of the problem loans, but that the legislation performed some kind of Jedi Mind Trick that caused the financial industry to destroy itself. Quit before you fall even further behind.

  19. David says:

    More partisan CRAP. There is blame a plenty, and everyones hands are red. Republicans, Democrats, Private industry, Public oversight, citizens living beyond their means, appraisers padding appraisals, brokers, investment bankers………

    I am sooooo sick and tired of partisan hacks trying to place blame and a total void of leadership looking for solutions……

    3rd parties have never looked so appealing in my entire life.

  20. kfizzle says:

    I’ve been trying to wrap my head around this for months. The argument is essentially that some banks, like WAMU, who were subject to the CRA, would have made these loans regardless of the CRA due to the low interest rates, while the rest of the loans came from non-depository mortgage banks, who weren’t subject to the CRA to begin with? Also, that the secondary mortgage market of FNM FRE and depository institutions that bought the securitized loans from the mortgage banks bought those loans because of potential returns, not to fulfill CRA requirements?

    It makes sense, and I can see how the blame on the CRA is misplaced, although I cannot say I see the light in regards to FNM FRE. How are they not a major conduit that passed the risk on from the mortgage banks to the rest of the financial system? Had they not existed, would we not have had at least a little more consolidation of losses, rather than the massive systemic risk we have today?

    Like many have said before, this has become such a partisan/hot button issue, both sides refuse to believe that the other might have any relevant facts, which is just a shame. Before anybody jumps me, I’m not fingering BR in that last sentence, its just a general observation.

  21. RockOnBarry says:

    I really like (NOT!) the idea that multiculturalism is a leftist plot. I think of it as getting along with your neighbors. You know, live and let live?

    And the focus on “like-minded people” gives me the willies. Are you one of those guys in Chicago in 1966 that was shooting black men who had the temerity to walk into your neighborhood? Of course it wasn’t because they were black, but because they had wrong ideas…

    Posted by: Doctor Jay | Oct 14, 2008 12:02:11 PM

    Doctor Jay, what I’m saying requires thinking above the autonomic “you’re a racist” response your pre-formatted, liberal university education provides.

    What I’m talking about is how a group of individuals bent on keeping a nation in the dark to their plans for ruling the ENTIRE WORLD, while having those in the dark pay for their endeavor.

    There is nothing beneath them.

    The end justifies the means.

    Any prosperity we enjoy is merely a side benefit, not the primary objective.

    We are all coppertops for their machine, nothing more, nothing less.

    Democrats and Republicans alike are both tools of the “masters of the Universe”.

    McCain and Obama are interchangeable.

    We are selecting the lesser of two evils.

    “Change” is coming…and from the looks of the setup…a lot of people aren’t going to like it. Be prepared for chaos.

    This current crisis was engineered, set up to fail. Think about it. Who was the source. Kudos to Barry for digging into it. It’s vital that we realize the ultimate source for this. Vital.

    The angst and anger in this thread is palpable…but yet there doesn’t seem to be anywhere to turn…certainly neither “candidate” is any different from those before them.

  22. SPECTRE of Deflation,

    you’ve been doing Yeomen’s duty on this thread, though arguing with dead-enders, like VJ (no offence meant VJ), creates much heat, but little light.

    Some, no matter the schematic you show, will still believe the Shadows are real( thanks Plato)

  23. Fred S. says:

    Home ownership is the epitome of the American Dream. All endeavors to allow that dream to be realized by more people was the rule. The realization of the dream did not come with any responsibility.

  24. kfizzle says:

    I also wonder if someone could shed some light on another question I have: The link posted earlier that showed the top 15 subprime lenders, and how only one was subject to the CRA. The bulk of the rest were subsidiaries of major depository banks such as JPM BOA and Citi. No related effects between the parent and sub as relates to CRA regulations? I know nothing of the legal regulations of such acts with regards to parent and subsidiary companies.

  25. morons says:

    it wasn’t the CRA that bundled loans, leveraged them 40:1, then got Moody’s and the S&P to rate them as “AAA” and have pensions buy them… was it?

    No, the problem was greedy Wall St. people being unregulated by Bush Administration people.

  26. VJ says:

    kfizzle,

    The argument is essentially that some banks, like WAMU, who were subject to the CRA, would have made these loans regardless of the CRA due to the low interest rates, while the rest of the loans came from non-depository mortgage banks, who weren’t subject to the CRA to begin with?

    Not to mention that many of the federally regulated banks, which were subject to the CRA, also set-up subsidiaries that did mortgage brokerage and were unregulated and not subject to the CRA.
    .

  27. kfizzle says:

    To add to my last post: Wouldn’t you think that the subs are the link between the big banks and their SIVs, and thus another reason why depository institutions are getting hammered with losses? More and more, I’m really finding the CRA blame to be rather circuitous. Of course, if these banks were doing this explicitly to comply with CRA regulations, that would pretty much change everything for me.

    Somebody has to know the answer to some of this.

  28. Dr. Kenneth Noisewater says:

    I really like (NOT!) the idea that multiculturalism is a leftist plot. I think of it as getting along with your neighbors. You know, live and let live?

    “You say that it is your custom to burn widows. Very well. We also have a custom: when men burn a woman alive, we tie a rope around their necks and we hang them. Build your funeral pyre; beside it, my carpenters will build a gallows. You may follow your custom. And then we will follow ours.”
    Sir Charles Napier, on multiculturalism.

  29. jay says:

    thanks, for this post. i cant stand hearing fannie and freddie being blamed either. it is about time the tide turns on this misinformation being delivered usually by people with an agenda. as if that alone should not disqualify them but agenda’s permeate all levels of communication. thanks,

  30. kfizzle says:

    I still don’t understand why FNM/FRE don’t deserve some blame. Without their then implicit govt backing, they would never have been able to borrow at such low rates, and thus help lower mortgage rates. You can’t take them out of the secondary market and expect that it wouldn’t have been vastly different. If so, then they genuinely serve no purpose. If you go to Freddic Mac’s website, there is a nice little graphic they made depicting how their whole process is supposed to work. It explicitly says that mortgage lenders drew up the terms based on FNM/FRE requirements and using FNM/FRE tools.

    If it is the unregulated mortgage banking sector that is to blame (and not the CRA), then how can FNM/FRE not be complicit and absolutely crucial to making that market work if lenders were drawing up mortgage to expressly fit the requirements of those institutions?

  31. Thanks BR for keeping the story ALIVE!!

  32. Francois says:

    Barry,

    Thanks for the article. However, it is useless to try to convince people who already believe these lies.

    Studies on cognitive dissonance and beliefs are pretty clear: arguing a belief with facts, paradoxically REINFORCE the belief.

    This has to do with espousing a belief as part of a broader sense of self. No one wants to question their sense of self without being forced be the facts and a substantial amount of personal pain.

    As an example, how it is that voters who would not have considered Barrack Obama as a viable candidate have changed their mind since the fall out on Wall Street and the markets?

  33. VJ says:

    kfizzle,

    When Fannie & Freddie were buying mortgages, they assumed everyone down the line was doing their due diligence all along the way. Their parameters certainly did not include mortgage brokers falsifying an applicant’s income, or their misrepresentation to applicants about mortgage reset rates, or false appraisals.
    .

  34. rvb says:

    Like most things, the truth is probably in the middle. Most bubbles are created by a confluence of unforeseen factors / luck and mixed with human emotions. I’m sure that CRA changes in ’95 had some influence (CRA scores, anyone?), but not sole responsibility. Mozilo, Bush, a focus on measuring performance with the wrong metrics, low interest rates, ratings agencies, those that relied too heavily on them, “Flip that house” shows, and good ol’ fashioned greed and fear all played parts

  35. Ron says:

    I’m not sure that the point was to point fingers at any political party (both sides interested in their own welfare above all). Barry says that simplistic touts of the CRA as root cause are just wrong.

    We haven’t become accustomed to living under socialism for long, but if it resembles European socialism, our children will be paying enormous taxes to cover the socialist agenda.

  36. kfizzle says:

    VJ, complacency is not an excuse. Most lines of business have a word for it: malpractice.

  37. Robert says:

    Regarding the Clinton surplus:

    http://www.letxa.com/articles/16

  38. rcm says:

    If Fannie and Freddie hadn’t lowered the standards for mortgages they would buy, would as many risky mortgages have been originated? If mortgage brokers were not able to unload their inventory to Fannie and Freddie, would the investment banks alone have been able to make up the demand that Fannie and Freddie represented? Unlikely. Thus, if Fannie and Freddie hadn’t lowered their standards, fewer risky mortgages would have been made, less money would have been chasing the same (or slightly lower) housing stock in this country and the housing bubble would not have been as bad. We’d probably still have had a crisis, but it would have been crisis-lite and concentrated solely in investment banks and AIG. Fannie and Freddie would still be solvent and the taxpayer would be on the hook for hundreds of billions less than we currently are. So without a doubt the lowering of standards for mortgages that Fannie and Freddie would buy up contributed mightily to the current crisis. And the lowering of standards at the GSEs was demanded by politicians–Democrats and Bush and Rove (who thought that is Hispanics, owned homes they would vote Republican).

  39. jim says:

    Moron = me. But wait; my IQ is >> 100.
    Thus, I am not a moron (whew).

    But wait, you’re not a moron either. Morons don’t blog (they are happy).

    Oh, I get it. You mean that I’m a moron, in a relative sense.

    Uncle Barry?

  40. necessarymeans says:

    We’re missing some important facts in this discussion.

    1. Fannie and Freddie were drastically losing market share because they weren’t in the subprime market. Subprime lending was growing exponentially. Fannie and Freddie ultimately got into the market late (very late) in the game. Furthermore, Fannie and Freddie only purchased AAA rated bonds. The arguement that Fannie and Freddie are to blame are simply unfounded. The subprime market had already taken off before they got in the game.

    2. No one is pointing the finger at the primarily lenders who originated these mortgages – the Ameriquests, Associates, Households and Countrywides of the world. I find that strange. These are the lenders who originated these failing loans and sold them to Wall Street investors. Why not start at the place where the loans were originated?

    3. Not all lending institutions are regulated by CRA. CRA only applies to depository lending institutions – like banks. Institutions that are not depository institutions – like Beneficial or Ameriquest, or New Centry – are not depository institutions. They are not covered by CRA. So arguing that these institutions who originated these problematic loans were concerned or pressured by CRA just isn’t the case. They aren’t regulated or monitored by anyone for compliance with CRA. What these institutions were concerned with was making money. That was their driving force.

    4. Lot’s of depository institutions and community based lenders made good loans to low and moderate income people and those loans are doing just fine. In fact, many of them perform better than prime loans.

  41. VJ says:

    kfizzle,

    VJ, complacency is not an excuse. Most lines of business have a word for it: malpractice.

    Actually, it was widespread FRAUD committed by an unregulated industry.

    How Fannie & Freddie would have been aware of that is beyond me.
    .

  42. VJ says:

    rcm,

    If Fannie and Freddie hadn’t lowered the standards for mortgages they would buy, would as many risky mortgages have been originated?

    But it was the FRAUD committed by an unregulated industry. The CRA loans written by federally regulated institutions have a very low default rate.

    If mortgage brokers were not able to unload their inventory to Fannie and Freddie…

    But that is their purpose. The problem was that an unregulated industry was gaming the system, and there were no regulatory cops on the beat for eight years.
    .

  43. rockitz says:

    Keep talking about the CRA, BR, please, please, please. Every time you do, the truth comes out and the liberal enablers in congress and their benefactors at F&F get implicated. BTW, how much longer are you going to try to portray yourself as an independent?

  44. oulous says:

    cmon!

    at this point you cant afford to be stupid anymore! The stakes are too high. Be happy you got away with 8 years of stupid.

    There is no one to blame for the last 8 years but the people of the last 8 years. Forget congress they are all republicans in sheeps clothing. Their part in all this is sitting by and doing nothing over all the crimes committed by the executive branch.

    2002 recession:

    Bush (et al) says to greenspan find a place to blow me a bubble and churn us out of this recession or you are out.

    Folks…. all the policies of the gov before bush were sustainable until wall street and greenspan made them into fairy dust.

    If you cant deal with the idea of the truth being this simple and blame being thrust on one group which is our entire gov for the last 8 years then move to disneyland where untruth is a way of life.

    Whats next blame Jefferson for Hoover?

  45. Erin says:

    Barry,

    You encapsulate the big picture on this ridiculous CRA topic perfectly!

    Thank you!!!

  46. Blissex says:

    «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 . . .»

    That GWB was saying that was because the Republicans had a strategy of shrinking the support of the Democrats among dark skinned people.

    The main political effect of home ownership (like car ownership, stock ownership, gun ownership, …) is to turn people into Republican voters, as they start to think with their wallet, and vote for ever increasing asset prices and to protect their wealth from the rabble.

    As Norquist wisely pointed out:

    http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699
    «The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.”»
    http://www.thevanguard.org/thevanguard/other_writers/norquist_grover/060803.shtml
    http://www.enterstageright.com/archive/articles/0903/0903norquistinterview.htm
    «The growth of the investor class–those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result–is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats.»

  47. yernamehear says:

    This VJ person is like a lot of folks I guess. To defend the proposition that the US defense budget did not go down as a fraction of GDP under Clinton he says that it’s many multiples larger than a bunch of other countries’ defense budgets. I’ll not waste people’s time by replying to the non sequitur.

    In addition, the underlying assumption, not clear if intentional or not, is that we should want a fair fight. No, I want our military to be many, many, MANY times bigger and badder than anybody else’s.

    Luck to you VJ

  48. Gary says:

    “No, I want our military to be many, many, MANY times bigger and badder than anybody else’s.”

    Posted by: yernamehear

    No problem. We spend more than the rest of the world combined (not including the two wars) on our military. When most of your oil is under the ground of other folks’ countries it’s how you proceed.

    It is unfortunate that Eisenhower’s fear came to pass. The amount of money spent by this country on non-productive, non-wealth-creation items like the military and housing among many others is incredible. Send the factories overseas and you’re not left with much except a reliance on credit expansion to keep the illusion going.

    BR,
    I understand and agree with why you made this post, but I hope we can soon get back to macro-economic issues and leave the politics behind because there is no political dialogue in this country.

  49. Jim says:

    Howard said, “I think we even had one from the Comptroller of the Currency (whatever the fuck that is).”

    Howard, I don’t really know what the fuck the Comptroller of the Currency does, but he is on the board of the newly created “Office of Financial Stability”:

    Section 101. Purchases of Troubled Assets.

    Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.