Cuomo's Quotas

IBD Editorials ^ | October 20, 2010 | Investors Business Daily staff

[Kaslin]

Subprime Scandal: Andrew Cuomo is running for governor of a state whose economy he helped sink when he ran the agency regulating Fannie and Freddie's "affordable housing" mission.

The Democratic candidate's role in the subprime mortgage scandal has not come out in New York's gubernatorial debates or in the media. But he's a chief reason Fannie and Freddie invested so heavily in the subprime loans still plaguing the mortgage giants and the overall economy.

As HUD secretary from 1997 to 2001, Cuomo pushed government-sponsored Fannie and Freddie to buy more home loans to low-income borrowers with impaired credit, in an attempt to end what he thought was lending discrimination against minorities. By 1999, they had committed $1 trillion in such high-risk loans.

But Cuomo still was not happy. So in 2000, he hiked their affordable-housing quota to 50%. That meant Fannie and Freddie had to devote fully half their mortgage financing to "underserved" borrowers with unproven or damaged credit. To help them meet that drastic new goal, Cuomo pressured them to relax their lending criteria and invest in subprime loans. He also authorized them to buy subprime securities.

This isn't ancient history. The quota Cuomo set in 2000 remained in force through 2004 and beyond. Four years after he required Fannie and Freddie to commit half their lending to support affordable housing, they together commanded almost half the subprime securities market.

Credit quality suffered while risk soared. By 2005, most of the loans they'd bought had down payments of 3% or less. Many had no down payment at all. By 2008, Fannie and Freddie had drowned in a toxic soup of bad subprime paper.

[mia]

How will Cuomo be any different than Obama? New Yorkers need to grab their wallets, guard their health, and watch over their children’s education. It will be a long four years.