What’s the dirty little secret behind today’s mortgage meltdown? Mortgage lending affirmative action. A 1999 New York Times article outlines how the seeds of today’s banking crisis were sown, in large part, by the Clinton administration’s drive to “help” otherwise non-creditworthy minorities buy homes:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.
Without government assistance, they could not have bought. And today, they can’t pay. Now, their lobbyists are working hard to get Congress to approve a bill that will give federal bankruptcy judges the power to “adjust” downward their mortgages balances, effectively taking property from tax-paying Americans and giving to individuals who can’t pay mortgages and probably don’t pay taxes either. I believe that everyone, from Clinton to Congress, were fully aware of exactly what might happen as a result of these bad investments in minority mortgages.
Some of them, like Barack Obama, were probably privately cheering the program because they knew that it would eventually mean that many of these borrowers would get into homes without paying for them.
More NYT excerpts:
As a government program Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
‘‘Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
As is so often the case, the government’s effort to “help” is causing more pain than gain — for everyone. Anyone know where to find Franklin Raines? I understand that he’s a Barack Obama economic adviser. Why has normally brash Bill Clinton been so understated — even statesmanlike — in response to this crisis? Because he knows, like few others, how it all began.
Full text at New York Times.
{ 16 comments… read them below or add one }
This is income redistribution, a’ la Marx, Engels, Lenin, Stalin… It is a step beyond socialism. But this is just the beginning; Obama has much more of this in mind and has said as much. Those of us who have seen the dreary, raw, ugly, anonymous blocks of Soviet high rises, where everyone is equal, *meaning equally poor*, we understand where all this heads.
But equality is only for those who are not powerful, even under a Marxist regime. There, the powerful have private entrances in hotels to luxury suites — through unmarked doors into marble halls and suites with parqueted floors and oriental carpets. I stayed in one of them in Moldova, a month after Gorbachev was forced out of power. Ordinary citizens did not know these places existed. Just as people like Obama’s friend, and now advisor, former Fannie Mae hotshot Franklin Raines lives in outrageous wealth, those who pull the strings do, and will, under socialist/Marxist rule.
But unless you are one of the ultra-elite, you will live in Cuban-style poverty. Castro was not the last charming young man promising “change.” Welcome, soon, to Cuba.
Kurt, the spin of your post, and the comment by April are unadulterated —- I’ll try to be polite — horse manure. It is just a reach too far to blame this on Clinton.
For a more balanced veiw, go to http://www.lewrockwell.com and read some of the entries there for the past couple of days.
It’s comforting to know that my grandmother’s nest egg, on which she depends for living expense and medical expenses, has been put at risk by Bill Clinton, to give blacks a free mortgage. If Morgan Stanley goes under, so does my grandmother. Thanks a lot Billy boy.
Doran –
Just read that 1999 NYT article and compare it to plenty of others. The Clinton administration was not the only contributor to this mess, but they definitely got the ball rolling. And they got it rolling in pursuit of an objective that Jeremiah Wright and Barack Obama have been agitating together for since 1995. If really are as libertarian as you pretend, you couldn’t possibly vote for Obama except as a protest vote.
Obama is possibly the worst, most poorly vetted candidate fielded by the Democrat party in probably 150 years. And that’s saying something. If he wins in November, it’s going to bite us all in the butt, big time.
Enough of the Lew Rockwell, disciple of Ron Paul, citing…I’m feeling nauseous already!
Yeah, Cosmo, unvarnished, un-spun facts can have that effect.
I am on the Ron Paul wagon too.
Blaming Clinton for what a Republican congress passed in 1999 is like blaming Bush for Congress giving him dictator power before going into Iraq.
Who needs an election?
http://www.youtube.com/watch?v=I6DRz…eature=related
Kurt, this post is one of the worst spin jobs I’ve seen on this blog. I wonder if any of the commentors above took the time to read the entire article, or if they just relied upon your selected excerpts to reach their conclusions, one of which, by “Joey,” is blatantly racist and factually incorrect.
Let us deconstruct the article fairly.
It was written in September 1999. Republicans had been in charge of Congress since January 1995. They did nothing to restrict the President’s authority to do what Clinton did, either before or after he did it. We should assume Republicans were in favor of his actions, since they never hesitated to slap down stuff Clinton attempted that they did not like.
Clinton’s actions were initially a “pilot program involving 24 banks in 15 markets.” Fannie Mae was feeling “pressure from stock holders to maintain its phenomenal growth in profits….”
“…banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers.” Why not say it: these people were just as much a part of the problem as Clinton.
Your quotes from Franklin Raines, and the quoted material following, is cast in the past tense: At the time the Clinton program started, only 18 percent of the subprime market loans were going to blacks; that means 82 percent were going to non-blacks. These non-blacks, generally known as whites and hispanics, were the people Raines was describing, who were being forced to pay higher mortgage rates, and they, as well as blacks, were to be the beneficiaries of Clinton’s actions. It is race-baiting ["minority mortgages"] to suggest that the program was designed exclusively to benefit blacks, and clearly there were no “free” mortgages, as Joey’s racist mind has fantasized.
Here is the important quote from Peter Wallison, a resident fellow at the American Enterprise Institute, which you did not include: “From the perspective of many people, including me, this is another thrift industry growing up around us….If they fail, the government will have to step up and bail them out the way it setpped up and bailed out the thrift industry.”
That warning was out there and probably was not the only warning. Why didn’t Republicans do something about it? Were they just too busy doing something else????? Like trying to succeed with their bogus impeachment of the President?
As the article notes, Fannie Mae did not and does not make loans to consumers. Instead, what Fannie Mae hoped to do, according to the article, was “…to spur banks…” to make the subprine loans. Banks were not required to make those loans; they did it because they could make a quick, easy and risk free loan, knowing they could sell the paper to Fannie Mae. Are the banks less culpable than the loan-seeking “liars” you alluded to in an earlier post? I think not.
There is ample blame to go around. It does no good at all to ignore that fact and to try to place blame on Bill Clinton. He did not “get the ball rolling” toward the melt down we have witnessed. Congress approved what he was doing. George Bush continued to do the same thing with Fannie and Freddie. The Republicans could have stopped it cold within months after Bush was installed as President. The have had eight years to heed the warnings and have done zilch.
Have you any explanation for the failure of Republicans to do so?
Without a doubt, some Republicans share blame for where the situation is now.
But the Republicans could not have unilaterally stopped the subprime train after it got rolling. Practically speaking — with Sen. Jeffords changing spots in 2001 — they did not “control” Congress until 2003. And after that, they never had a filibuster-proof Senate majority.
In this context, I take the terms “Clinton,” “Bill Clinton,” and “Clinton administration” as equivalent. I think it is fair to say that the Clinton administration helped get the subprime mess going with their efforts to expand home ownership beyond its natural boundaries.
While Fannie Mae did not directly loan money to subprime borrowers, they did so indirectly by buying those mortgages from the primary or originating lenders. In this sense, to say that Fannie Mae “didn’t loan to consumers” is inaccurate. They did just as surely as Sec’y Paulson is planning to loan or give money — through it’s bailout or handout — to banks and, thereby, to the same subprime borrowers. Without Fannie Mae standing there to buy up those loans, they never would have been made.
It’s also disingenuous to suggest that — with the pressure from the Clinton administration and “incentives” from Fannie Mae to make loans to financially shakey minority borrowers — the banks had any real choice. If they had not made the loans, they would have had Janet Reno busting them for civil rights violations left and right. In fact, if you dig into the news archives, you’ll find plenty of stories about that kind of pressure brought by Janet Reno. It wasn’t as much greed as fear of prosecution for NOT making the loans.
In a subsequent post, I’ll provide more data to support the assertion that the subprimes were much more heavily used by minorities than by other segments of society.
Not an expert but I can read non-biased articles to come to my own conclusions. Take a look at the following:
http://www.sundriesshack.com/2008/09/21/the-roots-of-the-subprime-mortgage-mess-have-clinton-all-over-them/
Be sure to follow all the links in the article, including the one that follows here…
THE WHITE HOUSE
Office of the Press Secretary
Dated Dec. 8, 1993
Any reasonably thinking person will conclude that gov. regulations during the early part of the 1990s were instrumental in why we are in the state we are today.
We as Americans need to stop this Rep/Dem biased BS or we are all going to be flushed by greedy power hungry politicians from both sides.
Forgot the White House Link…
http://clinton6.nara.gov/1993/12/1993-12-08-briefing-by-bentsen-and-rubin.text.html
Kurt Schulzke, you are right
article, of course, good, but something it lacks.
very interesting article. on most issues I agree with the author:)
Republicans held the House AND Senate from 1994 to 2007. The Gramm-Leach-Bliley Act was sponsored and pushed through by Republicans. Democrats were against it. Clinton did not veto the bill. (Remember Gramm? He’s the guy from McCain’s campaign who said we were all whiners.)