Affordable Housing, Diversity Mandates Caused Mortgage Crisis

by Hans Bader on August 5, 2008 · 19 comments

Banks and mortgage companies have long been under pressure from lawmakers and regulators to give loans to people with bad credit, in order to provide “affordable housing” and promote “diversity.”   That played a key role in triggering the mortgage crisis, judging from a story today in the New York Times

For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.”  The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.”  But they realized the risk: “In 2004, Freddie Mac warned regulators that affordable housing goals could force the company to buy riskier loans.”  Ultimately, though, Freddie Mac’s CEO, Richard F. Syron, told colleagues that “we couldn’t afford to say no to anyone.”

Now, taxpayers are on the hook for a massive mortgage bailout, which is estimated to cost $25 billion just to bail out the two government-backed mortgage giants.  And far from recognizing the devastating cost of its “affordable housing” fetish, Congress has created a costly new “affordable housing trust fund” that can be used as a slush fund by left-wing special interest groups.  Other provisions of the bailout are also larded with pork for special interests.

As a Washington Post story shows, the high-risk loans that led to the mortgage crisis were the product of regulatory pressure, not a lack of regulation.  In 2004, even after banking officials ”warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.   Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.” 

Lenders also face the risk of being sued for discrimination if they fail to make loans to people with bad credit, which often has a racially-disparate impact (proving that such impact is unintentional is costly and difficult, and not always sufficient to avoid liability under antidiscrimination laws).  They also risk possible sanctions under the Community Reinvestment Act.

Paul the Cab Driver August 7, 2008 at 6:50 pm

Never underestimate the power of do-gooders with government backing. God what idiocy! However, the do-gooders that created this gigantic mess will never EVER be blamed for it. Instead, the blame will fall on "greedy capitalist pigs".

Pete September 8, 2008 at 9:13 am

Maybe you should read the cited article since it doesn't put all the blame on congress. There was responsibility within these organizations that also led to the problems.

Sick of it in Colora September 14, 2008 at 6:41 pm

Paul, you hit the nail on the head with this one. The right wing is sick and tired of suffering the repercussions of the left wing with their diversity, affirmative action, disparate impact, save the environment and pay $6.00/gallon for fuel crap that is forced down everyone's throat. I will never understand how these idiots keep getting their warped ideas through.

N Waff September 17, 2008 at 5:29 am

Peliso makes the statement that Democrats are in no way responsible for this current disaster. These questionable mortgage laws and regulations occurred during the Clinton administration and championed by Democrats. And now they take zero responsibility for their recklessness. I can't see how Pelosi can make this type of statement with a straight face and clear conscience. It's unimaginable.Pelosi: Dems bear no responsibility for economic crisis…..

closerlook September 23, 2008 at 3:26 am

I don't see any Democrats complaining when people lose their homes because they can't afford to pay the local property taxes. Areas which the Democrats control have the highest property taxes in the nation. These monies usually wind up in big labor's pockets. Hey, wouldn't it be great to wiave the $7,000 a year property tax bill to save some of these homes from foreclosure?

alkemine September 25, 2008 at 12:25 pm

Why isn't it more widely reported that the explosion in subprime lending is the result of legislation from Democrats?

Cybercorrespondent October 3, 2008 at 4:23 am

A look into Barack Obama’s past might shed some light on the crisisBarack Obama joined Trinity United Church of Christ more than 20 years ago and considered the church pastor, Rev. Jeremiah Wright as his mentor. Rev. Wright married Obama and his wife Michelle, baptized their two daughters and is credited by Obama for the title of his book, "The Audacity of Hope." In his sermons, Rev. Wright repeated denunciations of the U.S and blurted out statements like “The government gives them the drugs, builds bigger prisons, passes a three-strike law and then wants us to sing “God Bless America.” No, no, no, God damn America, that's in the Bible for killing innocent people," he said in a 2003 sermon. "God damn America for treating our citizens as less than human. God damn America for as long as she acts like she is God and she is supreme."Looking at Obama’s ties to Rev. Wright, and his connections to a terrorist bomber, William Ayers, both men who would like nothing more than to destroy this country causes many people to second guess Obama’s intentions for change. If you have not heard about William Ayers, you can read about him in the U.S. News, Michael Barone’s column-Obama Needs to Explain His Ties to William Ayers. “In my U.S. News column, I make a brief reference to the unrepentant Weather Underground terrorist bomber William Ayers and his connections to Barack Obama. They were closer than Obama implied when George Stephanopoulos asked him about Ayers in the April 16 debate—the last debate Obama allowed during the primary season. To get an idea of how close they were, check out Tom Maguire's Just One Minute blog and Steve Diamond's Global Labor and Politics. The Obama-Ayers relationship is also mentioned in David Freddoso's The Case Against Barack Obama: The Unlikely Rise and Unexamined Agenda of the Media's Favorite Candidate.”Lets examine Obama’s connection with an accused political fixer Antoin “Tony” Rezko. The following is on explanation by Brian Ross and Rhonda Schwartz from ABC News. “In sharp contrast to his tough talk about ethics reform in government, Sen. Barack Obama, D-Ill., approached a well-known Illinois political fixer under active federal investigation, Antoin "Tony" Rezko, for "advice" as he sought to find a way to buy a house shortly after being elected to the United States Senate. Rezko had been widely reported to be under investigation by the U.S. attorney and the FBI at the time Obama contacted him and has since been indicted on corruption charges by a federal grand jury in a case that prosecutors say involves bribes, kickbacks and "efforts to illegally obtain millions of dollars." Because Barack Obama was a dependable ally of subsidized developers in the Legislature, his friend and fund-raiser Rezko depended on him to get things done such as cosponsoring a bill in 2001 allowing developers to pocket half of the proceeds from selling state tax credits to others. Obama admitted that his decision to involve Rezko was “a bone-headed mistake.” What he failed to mention is that he has a closet full of bone-headed mistakes such as Peter Wallsten pointed out in the Los Angeles Times on January 24, 2008.“Barack Obama angered fellow Democrats in the Illinois Senate when he voted to strip millions of dollars from a child welfare office on Chicago's West Side. But Obama had a ready explanation: He goofed."I was not aware that I had voted no," he said that day in June 2002, asking that the record be changed to reflect that he “intended to vote yes.”That was not the only misfire for the former civil rights attorney first elected to the state Senate in 1996. During his eight years in state office, Obama cast more than 4,000 votes. Of those, according to transcripts of the proceedings in Springfield, he hit the wrong button at least six times.”Now comes the big question, what exactly does a community organizer do?One thing Barack Obama did as a community organizer was pressure banks to make bad loans. In Barack Obama’s youthful community organizing days he joined a group called ACORN. Using the Community Reinvestment Act which was designed to encourage banks to make loans to high-risk borrowers, ACORN started abusing the law by forcing banks to make hundreds of millions of dollars in 'subprime' loans to minorities with bad or no credit. Using charges of racism and threats to use CRA to block business expansions have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America’s financial institutions.Other things that ACORN did as community organizers were agitate for higher minimum wages, attempt to thwart school reform, try to unionize welfare recipients who are obliged to work in exchange for benefits and organize voter registration drives. In 2006 for example, their voter registration drive in Washington produced 1,800 new voters of which 1,794 names submitted were fake. The secretary of state called it the “worst case of election fraud in our state’s history.” If you like to know more, watch these two videos.

Cybercorrespondent October 9, 2008 at 4:40 am

Thursday morning I turned on the news and heard that ACORN is under investigation for voter fraud in a number of states. Since I learned not to trust what the media tells us, I decided to have a look what the bloggers had to say. On a sight called A Look Into Barack Obama’s Past – Obamamania – Zimbio website I found the following comment that made me think.A concerned citizen Oct-6-08 7:48pm [Edit] Those two videos paint a very clear picture. As the terrorists have promised, they will destroy this country from with in. ….. …….. …….Back to my point. By allowing the voter fraud to go on, makes this great country look like a third world dictatorship. We are supposed to send an example to the rest of the world how honest elections are held and not allow the media to distort the facts. Please people, wake up and tell the media no more. Boycott all the products advertised on publications like the Newsweek, Time magazine and other propaganda machines like the New York Times. Also do the same with CNN and other communist propaganda news sources. Even the Fox News network is starting to sway the viewer decision. After Thursday’s presidential debate, watching Chris Wallace interview a communist from Saint Louis made me sick. Even bad journalists should realize that when you ask a communist or a skin head to give you their views, you can pretty much expect what they are going to say.I certainly had enough of all of the <a href="mailto:$">$%#@Comunism.orgCybercorrespondent

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