Posted on 09/30/2008 9:07:49 PM PDT by Peelod
Whoda thunk?
Looks like the smoking gun to me, but I’m sure the MSM will ignore. Political correctness trumps sound financial judgement.
Thank-you Bill Clinton, I hope you can feel our pain.
How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
By Terry Jones
Investor’s Business Daily
September 24, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=307149667289804&kw=craOne 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?
The answer is: President Clinton wanted it that way.
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.
The rewrite, as City Journal noted back in 2000, "made getting a satisfactory CRA rating harder." Banks were given strict new numerical quotas and measures for the level of "diversity" in their loan portfolios. Getting a good CRA rating was key for a bank that wanted to expand or merge with another.
Loans started being made on the basis of race, and often little else.
"Bank examiners would use federal home-loan data, broken down by neighborhood, income group and race, to rate banks on performance," wrote Howard Husock, a scholar at the Manhattan Institute.
But those rules weren't enough.
Clinton got the Department of Housing and Urban Development to double-team the issue. That would later prove disastrous.
Clinton's HUD secretary, Andrew Cuomo, "made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis," the liberal Village Voice noted. Among those decisions were changes that let Fannie and Freddie get into subprime loan markets in a big way.
Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks.
Since they could borrow at lower rates than banks due to implicit government guarantees for their debt, the government-sponsored enterprises boomed.
With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income.
By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market — a staggering exposure.
Worse still was the cronyism.
Fannie and Freddie became home to out-of-work politicians, mostly Clinton Democrats. An informal survey of their top officials shows a roughly 2-to-1 dominance of Democrats over Republicans.
Then there were the campaign donations. From 1989 to 2008, some 384 politicians got their tip jars filled by Fannie and Freddie.
Over that time, the two GSEs spent $200 million on lobbying and political activities. Their charitable foundations dropped millions more on think tanks and radical community groups.
Did it work? Well, if measured by the goal of putting more poor people into homes, the answer would have to be yes.
From 1995 to 2005, a Harvard study shows, minorities made up 49% of the 12.5 million new homeowners.
The problem is that many of those loans have now gone bad, and minority homeownership rates are shrinking fast.
Fannie and Freddie, with their massive loan portfolios stuffed with securitized mortgage-backed paper created from subprime loans, are a failed legacy of the Clinton era.
“....has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people....”
Related article “Assault On The Mortgage Industry” dated Dec. 27, 1993 By Robert Stowe England.
THIS IS A MUST READ. I’ve posted this link many times before, but always somebody replies whom is unaware of it.
http://findarticles.com/p/articles/mi_m1282/is_n25_v45/ai_14779796
Closing the Gap - A Guide to Equal Opportunity Lending PDF
Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits
Thanks. Excellent links. The Bentson press briefing really nauseated me. He instituted “...simple three tests we will have under the new reform: a lending test, a service test, an investment test. Are you making loans? Are you providing services? Are you making investments?”
Nobody gave a damn if anybody could pay the money back. These bastards in the Clinton administration caused tens of trillions of dollars of wealth to evaporate, may lead to the financial collapse of the U.S. and, in such an era of uncertainty, usher in socialism, fascism or communism because people demand “security and safety”. I hope Clinton gets the real legacy he so richly deserves.
Since I believe in Heaven and Hell, even if Clinton doesn't face judgment here, he will eventually.
bookmark for later
But, but, but, Clinton left office with the country in financial success - remember?
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.
In a move that could help increase home ownership rates among minorities and low-income consumers,and send banks and lending institutions spiralling downward less than a decade later. Pilot program with 24 banks, 15 markets, where was the oversight to make sure the pilot program was on track? I won't hold my breath for that to be included in the investigation of what went wrong at this time.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans (emphasis mine) among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
Gee, I guess now that his 'plan' has failed, he can rush in with some socialistic plan to rescue us.
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