Tuesday, November 1, 2011

Government involvement in the housing crisis

Once again, the MSM was either lazily or willfully asleep instead of doing their jobs.

As the minority of thinking adults knew, the Government played a major roll in the housing bubble. They accomplished this using a three pronged strategy.

1) They (Clinton and Co.) put pressure on the loan industry to improve their sub-prime portfolios using things like the document outlined at the link (give it a read).

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

For the first time, Washington's bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press.


The regulatory missive, which had the effect of law, advised lenders to bend "customary" underwriting standards for minority homebuyers with poor credit.


It warned lenders who rejected minority applicants with high debt ratios and low credit scores to "be prepared" to prove to federal regulators and prosecutors they weren't racist. "The Department of Justice is authorized to use the full range of its enforcement authority."

2) Harry Reid and others (along with being involved in #1 above) used Freddy and Fanny as the carrot to help mitigate lender risk associated with these sub-prime loans that the Government was pushing them to make.

3) Either as a coincidence (really?) or through (at least) tack coordination, citizen groups like the ones (not yet) President Obama was involved in (along with Jessie Jackson and other civil rights groups) put social pressure on these same lenders "from the streets" to improve their minority lending.

Were some bankers greedy, sure. If I was told that I needed to make more loans and that I would not be at all responsible for any bad loans, that in fact they were all going to be guaranteed by the Government and the Government wanted me to make the loans, why would I not? Because it was not the right thing to do? If the Government says do it or else, it is the right thing to do, from a corporate perspective.

Yet another reason why the Government should not be as big an influence in the market as they are. When the Government tries to pick winners and losers, the only thing you can be sure of is that nearly everyone will lose.

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