No, this isn’t a post about my poor housekeeping. A few of us were discussing the history of the housing mess Friday evening and differed as to it’s origin. This post at Cold Fury has several decent links supporting my point that the problems began on the governmental side and not the private sector side.This editorial from boston.com makes a good point:
“..mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.”
“The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites.
The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime” lending by authorizing ever more “flexible” criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.”
The free market did not cause this problem. The federal government has decided that financial security and the soundness of our economic system should take a backseat to “social justice”.
“Gov. Michael S. Dukakis of Massachusetts ordered two cabinet members to review the Federal Reserve Bank’s findings and ”to use every means at our disposal to insure that every citizen has the opportunity to own a home regardless of race or national origin.”
How about their ability to pay off the damn loans?!?
Finally, here’s a link to a NY Times article from Sept. 11th 2003. The Bush administration was attempting to create a new agency within the Treasury Dept. to oversee Freddie and Fannie. In my mind adding yet another federal agency to oversee this fiasco was the wrong move. As it turned out, nothing was accomplished so we’ll never know if his method would have solved anything.
“The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,” Mr. Oxley said at the hearing. ”We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,” the independent agency that now regulates the companies.
The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.
At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families.”
“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.”