How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable

IBD Editorials ^ | September 24, 2008 | TERRY JONES

[Kaslin]

One of the most frequently asked questions about the subprime market meltdown and housing crisis is: How did the government get so deeply involved in the housing market?

Fannie Mae and Freddie Mac, even into the early 1990s, weren't the juggernauts they'd later be.

While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie's and Freddie's rules.

In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.

Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended.

Addressing the National Association of Realtors that year, Clinton bluntly told the group that "more Americans should own their own homes." He meant it.

Clinton saw homeownership as a way to open the door for blacks and other minorities to enter the middle class.

Though well-intended, the problem was that Congress was about to change hands, from the Democrats to the Republicans. Rather than submit legislation that the GOP-led Congress was almost sure to reject, Clinton ordered Robert Rubin's Treasury Department to rewrite the rules in 1995.

[raygunfan]

gee, another clinton blunder back to haunt us....surprise....

[dr_who]

Democrats figured out a way to keep their claws in power despite their tendency to alienate the public: keep their ranks filling up the seats on the Wall Street-Washington shuttle. Once their ranks reach critical mass, they'll be indispensable because there are no more honest “qualified” people left, and so the very people that the country needs like it needs like the most famous names on the FBI's "most wanted" list have enough power to hamper reforms and bleed the country dry, regardless of what voters decide.

[Soliton]

They don’t mention that Franklin Raines worked in both the Carter and Clinton Budget Offices. They also don’t mention that Community Organizers like Obama financed ACORN’s housing unit.

“About Acorn Housing Corporation
ACORN Housing (AHC) is the largest nonprofit (c) (3) housing counseling organization in the nation, providing one-on-one mortgage loan counseling, first-time homebuyer classes, post closure and loss mitigation services, and financial counseling for families. Since its inception, AHC has provided free, high-quality counseling services to 250,000 households across the country, more than 80,000 of which have become homeowners, generating more than $10 billion in mortgages. AHC has 39 affiliate offices located throughout the United States, with 130 full-time employees. AHC has also developed over 1,500 units of affordable single family and rental housing over the years, including more than 250 owner-occupied single-family homes, and 460 ownership units in small multi-family buildings in various cities around the United States. To date, AHC projects have leveraged over $100 million in affordable housing financing and subsidies. Additional information about Acorn Housing can be found at:
http://www.acornhousing.org/.

[johnnycap]

Well, Well...Monica’s CHICKENS are coming home to roost.

[RC2]

The article needs to document for the people how many times President Bush went to Congress and warned them of the coming problems. Even McCain went on the Senate floor in 2006 and warned of the coming problems but the democrats blocked any positive decisions. That’s Barney Frank to begin with.

[trumandogz]

For some reason the writer fails to mention that the President requested 440 billion for Fannie and Fredie sub primes for minorities.

[PhiKapMom]

This post should have many more comments which makes me wonder about the people going after Sen McCain for suspending his campaign and going after Pres Bush for his speech. Why aren’t they commenting on this thread that explains what happened?

[GreyMountainReagan]

I knew my tagline was correct I just wish it wasn't demonstrated so effectively.

[FlyVet]

I think Hannity said seven different times today. The problem is, he went to congress, and when they resisted him, he backed off.

He should have pulled a Reagan, bypassed congress, and addressed the people on national TV.

He sure didn't have a problem with going on national TV tonight, when it's already too late.

Our Gubmint is so good at being reactive, piss-poor at being proactive. In fact they probably run and hide when someone says "proactive", like demons running from a crucifix.

[rvoitier]

Found this at the bottom of a sports article I read last night:

Thanks Jimmah and Bill

[rvoitier]

nevermind

[FlyVet]

Holy crap. "No money down! Bad credit okay!"

Loaning out six figure sums, acting like used car dealers. Freaking idiots.

[ar15lib]

They’re not commenting because the article is flat-out wrong. It’s got just enough truth to seem credible.

Note the disjunction in two key paragraphs later in the article; there’s NO explanation of how Fannie/Freddie’s market dominance made OTHER banks make these loans...or anyone else buy those loans as securities, which is the current problem.

And, even if there was, it doesn’t excuse no income-no asset loans behaviour we’ve seen from banks.

You’ll note the article fails to point to a single specific regulation, and just relies on anti-Clinton invective.

Clinton Derangement Syndrome is just as bad as Bush Derangement Syndrome.

[B4Ranch]

The President requested 440 billion for Fannie and Fredie sub primes for minorities. The number these days is up to $700 Billion. As you said, "The Democrats are driving us to Socialism at 100 MPH -The GOP is driving us to Socialism at 97.5 MPH!

[singfreedom]

I highly recommend this article to ANYONE who does/has believed that an eight year reign, by a socialist Democrat President, is something that the U.S. can handily survive. Yes, I recall hearing folks say “We surived Clinton, we can survive Obama”. According to this article, we may not have survived Clinton!

Just recall all the horrible damage he did to this country in a short 8 year period. Limiting our ability to produce enough of our own energy, setting a policy for our FBI/CIA which allowed 3,000 Americans to be murdered, and engineering the economic destruction of the U.S, are heavy burdens for any one President to bear.

Personally, I don't think we could survive another 8 years of lying, cheating, stealing, Democrats.

[Bertram3]

The Republicans caved in to Clinton’s charges of racism in the mortgage industry. Remember the “redlining is a code word for racism” baloney? The fiasco in the financial markets is largely a result of affirmative action lending practices. Minority members who wanted a home loan could recieve on in spite of the fact that a non-minority member would have been laughed out of the bank with the same qualifications.

Now we all now pay, minorites along with the rest, by either funding the bailout or enduring a financial collapse.

[singfreedom]

I read it differently. It says that banks were “required” to grant these loans if they wanted to expand or if they wanted to be absorbed by other banks. Auditors were in place to insure that banks were granting these bogus loans. Banks always have bought and sold loans. The problem is/was that these loans were marketed as good, valid loans. In truth, they were loans which no thinking banker would have approved IF they hadn't been required to by the government.

My sis is a real estate attorney. She has seen this coming for years now. Much of her business is foreclosing for major mortgage lenders. According to her, it is impossible for banks to properly qualify potential borrowers when the government prohibits bankers from asking questions like “are you employed”, “what is your income”, “have you ever gone bankrupt”, or even “are you a citizen”.

[TBP]

It started with Carter and redlining. Clinton finished teh job, but managed to delay the ffects until his successor’s administration.

Oh, goodie! Something else we can nationalize!

[Brad from Tennessee]

Link to the VILLAGE VOICE article referenced above:

http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/