Clinton Set Up Collapse of Fannie Mae, Freddie Mac

RE:37  Now you decided to blame it on Carter...you whine when Bush gets blamed for anything and the Financial collapse happened because of Carter -- 38 years after he left office?  Tell me how many of those late 70's loans defaulted? 

If you want to enlighten yourself try reading an article that is more factual and less political in nature...

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt. (Barry Ritholtz had an excellent and more comprehensive survey of how Washington contributed to the crisis in this week’s Barron’s.)

There’s plenty more good reading on the CRA and the subprime crisis out in the blogosphere. Ellen Seidman, who headed the Office of Thrift Supervision in the late 90s, has written several fact-filled posts about the CRA controversey, including one just last week. University of Oregon professor and economist Mark Thoma has also defended the CRA on his blog. I also learned something from a post back in April by Robert Gordon, a senior fellow at the Center for American Progress, which ends with this ditty:

It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did. And that is not political correctness. It is correctness. 

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinvestment_act_had_nothing_to_do_with_subprime_crisis.html

Re: 36 - That train was headed down the track long before Bush and the Repubs controlled much of anything. And it's pretty obvious who was pushing peeps to buy houses they couldn't afford. But I reckon if you keep repeating the contrarian lie often enough, some of the dimmer lights among us may start to believe it... :)

Barney Frank's talking points notwithstanding, 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.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

Source

RE:34  Cherry picking clips of Barney Frank and other Dems doesn't change the fact that from 2000-2006 the time of the clips, the Senate was controlled by Repubs, the House was controlled by Repubs and the White House was controlled by Repubs, but you only show the Dems....If the R's were for it -- it would have happened--that is the simple Truth.

Just like Wall Street greed and a failure of the gov't to rein it in, caused the financial collapse.

 

Re #33:  Saul Bellow said it best, "A great deal of intelligence can be invested in ignorance when the need for illusion is deep."

None have more need for illusion than Welder (though there are several regulars here who are very close seconds).
     

Re: 33 - I will rest easier tonight... :)

Re: 32 - The tale of the tape is pretty clear, Molli, but you're certainly free to believe whatever comforts you.

You can spend all the time you wish floating down that river in Egypt, but the rest of the country has figured it out.

Re 31: Just a general comment.  For the record, I do not consider you anything close to a simpleton, although you seem to be on board with the simpleton's view in this matter.  Agree on Jefferson.

RE:29  If your tape is from Faux News you really don't know History.

As for who had oversight of the GSE's it was HUD--prior to 2008, which I believe is part of the Executive.  Congress may have chosen not to amend that oversight until 2008, but that is not the same as having authority over it.

Accepting your erroneous argument--Why could Clinton pressure the GSE's into expanding their loans to low income, but Bush could not pressure them into stopping?  Did he try?

The timeline shows a clear shift in subprime mortages in 2004 to 16-18% of all new loans, these level were never reached under Clinton's pressure....If you ask me the pressure came from the investment banks/Wall Street and hedge fund managers, they had a demand for mortgage backed securities and needed to expand the supply.

Re: 30 - If that was directed at me, I'm hurt beyond mere words. I've never said that anyone's hands were clean re the mortgage mess, but it's pretty obvious which peeps planted the seeds and which ones facilitated it...

There aren't a whole bunch of heroes in either party currently, and while I'm not ecstatic about the Repubs as a party at present, it seems to me that they suck a lot less than the alternative.

Jefferson is weeping...

Ah, the simpleton's world view, where something as complex as the mortgage crisis is solely the fault of Clinton (or even the Dems), and where all evil stems from only one of the major political parties.

Re: 28 - One problem, Congress has authority over the banks, not the presidente.

All he can do is attempt to use his position to influence the congresscritters and apparently Bush did exactly that.

It's tough to revise history when it's on tape... :)




 

RE:27  If Banks were being pressured by regulators ... it was Bush doing the pressuring.  He was in charge of the Executive Branch in the mid 2000's when the subprime mortgages jumped from being 8% of mortgages processed to 16-18% -

Also depository banks didn't create the mortgage backed financial instruments... the shadow bank  (hedge funds and investment banks) system created them.  Mortgage backed securities became so popular the shadow banks demanded more mortgages from the depository banks...depository banks responded by lowering their credit standards so they could sell more mortgages to the investment banks and hedge funds.  It is basic supply and demand.  If a bank had 1,000 mortgages to sell and there was no demand, no would be sold.  But if the demand were 1,500 mortgages,  and you had 1,000 you might be tempted to figure out away to acquire another 500 and if that meant lowering your standards so be it.

Re: 26 - Of course, the situation becomes incredibly murky and complex when it becomes necessary to obscure the obvious.

Once again for the slower among us - the banks weren't making these loans until the congresscritters began pressuring them with accusations of redlining and threats to harm their businesses.

The banks, rather than eating the losses from the bad loans they were coarced to make, did indeed create the financial instruments that enabled them to turn the lemons into lemonade. Banks aren't charities, they're businesses - and their business isn't to lose money.

None of this would have happened had it not been for the initial actions of vote hungry legislators. Dumb as Bloomberg is, even he groks the reality of the mortgage bust... :)

Re #25:   As per usual, echoing the opinion of one man, by no means an expert on the issue, that happens to agree with you and that is directly contradicted by virtually every study of the subprime mortgage situation.

It seems to me that the (current, & probably permanent) first commenter on your source article has nailed it:

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Knowing what I do of how the gubmint works, I can understand the need for gubmint drones past and present to absolve themselves of any blame. After all, if the gubmint is the problem, then how do you justify making it bigger and giving it more power?

It still amuses me to watch them create these problems, exacerbate them with their "solutions" and then go into rapid fire finger pointing mode when their genius ideas have unintended (and disasterous) consequences...
I'm content to let the peeps make the judgement call on the causes of the mortgage mess, even the kook left ones get it right once in a while.

"I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that.

"But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."

Source

"Well, the trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so."     
      
-- Ronaldus Magnus
                 



 

 

"We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes"

http://www.federalreserve.gov/pubs/feds/2011/201136/201136abs.html

Re #22:  You have included two elements that are anathema to the right-wing base:

1.  Experts.

2.  Study.

--------------------------------------
   It is useless to attempt to reason a man out of a thing he was never reasoned into.
             ~ Jonathan Swift (1667-1745)

Based on the Canner and Bhutta study, former Federal Reserve Governor Randall Kroszner concluded, "we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis." In reaching this conclusion, Kroszner and the Federal Reserve Board joined other bank regulators in affirming that CRA did not cause the mortgage-market meltdown. Federal Deposit Insurance Corporation Chair Sheila Bair has stated, "I want to give you my verdict on CRA: Not guilty." Comptroller of the Currency John Dugan agrees: "CRA is not the culprit behind the sub-prime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with sub-prime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA." All of these regulators were appointed by President George W. Bush.
http://prospect.org/article/dont-blame-community-reinvestment-act

Re: 20 - No, thank you, for me winning is its own reward... :)

actually, it's from one of your own links,

thanks for playing though

Re: 18 - I think I've seen that CYA opinion piece from several "experts", most of them that just so happened to be part of decision making process that created the mortgage morass.

I'm not going to fault them for trying to rewrite history.

And keep trying to sell it, I admire the effort... :)

from an apparently unread link:

"Legal and financial experts have noted that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton, stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight". According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis. A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans. Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures."

Indeed :(

Re: 16 - LOL, Congress creates and runs these agencies and then conveniently uses them as scapegoats when things go South.

One comment from your "Dealbook" link is particularly on point.

If in fact that is all that is in the report, then it completely fails to recognize the real culprits in the mortgage/financial crisis. According to the article, there is not one mention of the Community Reinvestment Act, and the activist organizations (initially led by Gale Cincotta and then by Jesse Jackson) which forced (yes, forced) banks to lower mortgage lending requirements and issue loans to minorities. In any other arena, it is called extortion. There is no mention of how Janet Reno and Henry Cisneros (followed by Andrew Cuomo) used the powers of the Federal Government to MANDATE that banks write 42% or more of their loans to low-income areas, requiring even further lowering of lending standards. And the comment that "regulators were nowhere to be found"... that is absolutely absurd. The regulators were actually forcing this to happen. Heck yes they were around. They actually caused it. There is no doubt that financial institutions and banks should have acted more prudently. However, to do so, they would have had to stand up to claims of racism by minority organizations, and the legal fire power of the Federal Government gone wild.

If you are going to blame someone, blame those actually responsible. It appalls me to hear Barney Frank and Chris Dodd  stand there and blame banks. Those two were instrumental in forcing Fannie Mae and Freddie Mac to issue loans which were almost guaranteed to default. And please don't forget that credit default swaps were hailed by the Clinton administration as magnificent instruments which gave Fannie/Freddie & local banks more ability to write even more bad loans.

Please, do your homework and don't be a sheep buying the crap being laid by the media and certain politicians. Read about it yourself. It isn't hard to find.

Indeed... :)

RE:14  The Financial Crisis Inquiry Commission reported that Federal Agencies did missed the mortgage bubble and for turning a blind eye to Wall Street’s excessive risk.  The SEC, Treasury and Fed Reserve did not act as they should to stop the shadow banks from creating the subprime crisis.

http://dealbook.nytimes.com/2011/01/27/harsh-words-for-regulators-in-crisis-commission-report/  

If you want to believe your version why blame Clinton?  Until 2004, subprime loans accounted for 8% of processed mortgages a year, but in 2004 -2006 this % jumped to 16-18% of processed loans.  Why did Bush's Admin push these loans?   Or was it that his admin put pressure on the exec agencies like the SEC, Treasury and Fed to let Wall Street work their "magic" .... to the detriment of the Country.

RE 15:  Your story is cute...I always like when the story changes ... at first the Bank lost 250K, now its down to 200K...tell it 4 mores times and they won't lose any. 

My brother in law is on the board of a middle size eastern Pa. Bank.  He tells me that up until recently, everytime the bank examiners came, they fussed about the fact that his bank wasn't making enough "Edgy" loans.  His bank made just enough of them to keep the feds off their back and so far they have only suffered a couple of forclosures and have lost less than $200,000.   It was the CRA that planted the seeds of the Housing Meltdown!!!!!

Re: 13 - Studied it at length, even from the kook left perspective. It was simply another progressive vote buying scheme gone awry. Watching you guys is kind of like watching Wile E. Coyote work his latest grand strategery... :)

No CRA, no regulatory pressure on banks in the name of curtailing real or imagined "redlining", no mortgage crash. The banks simply would not have made those loans.

I liked that movie...

Re #12:  The only ones denying the obvious are those who simply won't study the issue and come to the only reasonable conclusion:  the primary responsibility for the subprime mortgage crisis rests with one sector - private banking.

Of course, it's long ago become evident that Gordon Gekko is your patron saint.

Re: 11 - Ok guy, I understand your need to continue to deny the obvious, but I think the majority of the country has grokked the reality of the Dem orchestrated mortage mess and moved on... :)

Re #10:  It's only the "willfully ignorant" who would accept servicing from you. . . ;-)

Everyone knows that the terms of the CRA do not require lending to genuinely poor credit risks.   Not lending to those who are statistically likely to repay, because "you don't like them" for some ill-defined (yeah, right) reasons had ought to be a regulatory consideration when you want to "expand through merger, acquisition, or branching."

Doing the right thing, not the thing you've always done, is always a good idea.  Prejudicial and/or predatory lending practices are never "the right thing."

Re: 9 - Servicing the willfully ignorant must be a labor of love for me... :)

An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. 

Source

There would be your "pressure", as only your benevolent gubmint can apply it.

In the private sector it would be called extortion.

Re #8:  You realize you've proven my point.  No lender was ever forced to make these loans, period.  Your brother-in-law's bank did not change its policy and it was subject to the same regulations as other banks.

There was (and there remains) a "happy medium" that can and should be encouraged.  That means not redlining and also means not handing out loans without apparent concern as to whether the borrower can pay it back.  It has long been a problem that many banks do not make loans to individuals who are, by all statistical signs, likely to pay a loan back because of ill-defined prejudices.  It's not a bad idea for the government to encourage banks that continue to do this to perhaps consider doing otherwise.  Yet, in the end, it's the lenders who make those decisions.

If you consider it "planting the seeds for the housing meltdown" that the government encourages lending to individuals who are statistically likely to repay, but who have often been denied access, well, then, we'll simply have to agree to disagree.  What is being planted by the government was not the subprime mortgage crisis.  That crisis was almost entirely the making of the lenders (and, to a lesser extent, borrowers who should have known better - but given the level of financial literacy of many these days, many don't know better.  The lenders do, though, and your brother-in-law's bank is an excellent example of a bank doing due diligence before originating a loan.)

My brother in law is a director on the board of a medium sized bank in eastern Pa.  He says that up until recently, every time the examiners came they would tell them that they weren't making enough loans to "Sub Prime" (ie Poor Credit Risks) and that their credit standard were too high.  The law may not have required them to make risky loans but the Government put pressure on them to do so.!
  So far they have foreclosed on only a couple of loans and their total losses are less than $250,000.  The Government Planted the Seeds for the Housing Meltdown!!!!

don't bother welder...these libs run away from the facts. it's much easier to keep their hand in the sand 

Re: 5 - Of course it's "weak" in your somewhat jaundiced eyes, guy; it's comprised of simple (and verifiable) facts...

No CRA, no accusations of "redlining", no bad risk loans - it's just that simple.

A weak opinion piece in the WSJ by a mouthpiece for the American Enterprise Institute - hmmmmmmmm?    Nope - not convincing at all.

It's fun to see Mr. Wallison brush aside factors that have been repeatedly identified by economists of all persuasions as critical flaws at the level of banks and brokers as though they didn't exist, ever, and try to dump these decisions on the government, which never forced them by any means.

Greed remains greed, and that's what was at the root of the subprime crisis.   Trying to wave that away just doesn't work (and isn't convincing to anyone who's been paying attention).

Re: 3 - Nope, the causes of the mortgage crash are well known.
Quite simply, the gubmint pressured banks to make loans to peeps who couldn't pay them back (see the CRA and redlining). The banks, deciding not to eat those bad loans (as expected) found a way to package and sell them, thus outsmarting those genius vote buying politicians.

Ah, those unintended consequences... :)

I am endlessly amazed at how the root subprime mortgage crisis keeps getting pushed off onto the political system, when it had little to nothing to do with it at either the congressional or presidential levels.   All of the legislation that typically gets referred to encouraged lenders to offer some loans they may not have in the past, but it did not force them to offer them nor did it dictate that they make the number of really risky loans that they did.   The lenders saw what they thought was going to be a golden goose (and was, before the housing market took its long overdue correction) and intentionally made loans that they thought were risky since at origination time foreclosure didn't seem like a losing proposition.

I bought my one, and only, home in 1989 when I was making barely more than $25K/yr as a professional in the IT industry and living in Northern Virginia.  At that time real estate agents wouldn't even show you homes unless they "pre-qualified" you by having all of your financial information and figuring out what banks would extend in terms of a mortgage.   The banks wanted documentation that virtually included what you had for breakfast before they'd even consider giving a mortgage.   My, but how that all changed over the next couple of decades and that change occurred at the bottom (local banks and agents) not the top.

There is and was nothing wrong with the government trying to encourage home ownership among a wider income range.   That doesn't absolve the banks of due diligence, which they tossed out the window in hopes of making the big bucks (and they did, until the collapse that their profligacy and greed caused).

I can't even blame the borrowers.   Most of us who've ever gone for loans of any kind work under the presumption that banks won't make those loans if they don't believe that the ability to pay them back is highly questionable.  That simply wasn't the case with the subprime mortgages which were practically handed to you at the bank door if you could draw breath.   When I sold my home in the early 2000s I really wondered how the person who had bought it would ever be able to pay for it.  Nothing suggested that they would be able to do so over the long haul, which is what a mortgage is about.

Re 1: Hogwash.

This crisis is not the fault of Clinton or Obama. How about the lenders? Homebuyers? Underwriters? Credit approval ratings agencies? The reality is that the economy was at risk of a deep recession after the dot-com bubble burst in early 2000. September 11 only made things worse. So how did the world respond? Banks tried to stimulate the economy not just here in the United States but throughout the world. That is what pushed lenders to take greater risks; like approving subprime mortgage loans to borrowers with poor credit or even some who had no jobs. Businesses like banks, real estate firms, and construction companies went out of their way to give mortgages to people who clearly did not have the means to pay them back. It was the consumer's demand that drove the housing bubble to its all-time high; and that didn't give us a happy ending, that gave us an incredibly high foreclosure rate. 
 

What Mr. Limbaugh forgets is that the Republicans did their part too. As much as I like to blame G.W., the reality is President Bush did not do this alone; but he did contribute heavily. In the 1990s, President Bush was pushing his "ownership" society, encouraging everybody to purchase homes. On Oct. 15, 2002, at Georgetown University, President Bush said that there was a home ownership gap for minorities. He spoke of helping 5½ million more people to own their own home within the next five years. He called the program "American Dream Down Payment Fund." G.W. Bush was president during the time of this financial fallout. He was the captain of the ship. He cannot be absolved of his responsibility or in this case, blame for this problem, and neither can the top dogs at the Treasury under his command. The theory was that if Americans were homeowners, they would more likely vote Republican.


Source.

Bingo.  The blame for the sub-prime mortgage crisis belongs squarely on the Clinton Administration.