mortgage crisis

Government Uses Takeover of Mortgage Giants to Deliberately Increase Their Massive Losses at Taxpayer Expense

by Hans Bader on January 5, 2010

in Bailout Watch, Economy, Politics as Usual, Precaution & Risk, Regulation, Sanctimony

The Wall Street Journal notes that the Obama administration has used the federal government’s bailout of mortgage giants Fannie Mae and Freddie Mac to do the exact opposite of what the federal government claimed it would do when it took them over a year ago.  It took them over in the name of winding down their risky loan portfolios, so they would stop running up losses at taxpayer expense.  But the Obama administration is deliberately making them run up huge losses to help out irresponsible borrowers who potentially might default on their mortgages.  “In today’s Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money.”

Over Christmas Eve, the Obama administration not only lifted the $400 billion limit on the bailout (and showered their CEOs with cash), but also ended “a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion.”

The Obama administration is now deliberately making them lose money:  “the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. . . Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses.”

“Much of this is being done off the government books,” to hide the costs of the Obama administration’s record deficit spending.  And their CEOs are being paid a fortune, the Journal notes, because “Fannie and Freddie are exempt from the rules” limiting compensation at private banks.

The mortgage crisis was caused partly by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and partly by the affordable-housing mandates imposed on them.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

And banks will now be pressured to make even more risky loans.  The House has approved Obama’s proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”  The Community Reinvestment Act was a key contributor to the financial crisis.  But the Administration’s proposal would direct the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

Obama’s financial-regulation plan is “largely the product of extensive conversations” with two lawmakers responsible for the current financial mess, the corrupt Chris Dodd, and Barney Frank.

Another $75 billion in taxpayer money is already being wasted on mortgage bailouts that economists and real estate experts say is actually harming the economy and the real estate market.

Obama’s Recent $75 Billion Mortgage Bailout Fails: Harmful to Economy, Housing, and Construction, Say Economists and Real Estate Experts

by Hans Bader on January 4, 2010 · 2 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Legal, Politics as Usual, Regulation

Economists and real estate experts are saying that a $75 billion mortgage bailout program designed by the Obama administration has backfired and harmed the housing market, reports The New York Times:

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good. . .experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

That “’has the effect of lengthening the crisis,’ said Kevin Katari, managing member of Watershed Asset Management. . . ’We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway,’ and ‘banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books,’” delaying a recovery in the housing market and the construction industry.

The failed mortgage bailout is reminiscent of the government’s attempt to reduce burdens on irresponsible credit card borrowers, through a new law, the CARD Act of 2009, that backfired and resulted in the return of annual fees, bizarre interest rate hikes for some responsible borrowers, and the elimination of many cash back and rewards programs.

Earlier, the government pushed through billions more in other mortgage bailouts, to bail out even reckless high-income borrowers, and forced financial institutions the government took over in the name of fiscal responsibility, like Freddie Mac, to run up billions in losses bailing out irresponsible borrowers.

Banks will now be pressured to make even more risky loans. The House has approved Obama’s proposal to create the so-called Consumer Financial Protection Agency. Government pressure on banks to make loans in economically-depressed neighborhoods was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and by federal affordable-housing mandates. But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, the Obama Administration lifted the $400 billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.

Obama’s financial-regulation plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Mortgage Meltdown Was Caused by Government Mandates

by Hans Bader on October 21, 2009 · 2 comments

in Bailout Watch, Legal, Politics as Usual, Precaution & Risk, Sanctimony

The mortgage meltdown was caused partly by the government, which created an artificial market for bad mortgages.  The Washington Examiner cites a recent study by Peter Wallison, who had prophetically warned about risky financial practices for years, finding that two-thirds of all bad mortgages were either “bought by government agencies or required to be bought by private companies under government pressure.” Now, the Federal Housing Administration is ramping up its purchases of low-quality mortgage loans, threatening taxpayers with hundreds of billions of dollars in losses, and creating the risk of another housing bubble in the future.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Bank of America to Impose Annual Fees on Some Credit Cardholders, Thanks to New Credit Card Law

by Hans Bader on October 20, 2009 · 1 comment

in Bailout Watch, Legal, Politics as Usual, Sanctimony

Bank of America recently announced that it will impose annual fees on some of its cardholders.  This is in response to the CARD Act (Credit Card Accountability Responsibility and Disclosure Act of 2009), which effectively shifts costs to responsible people from irresponsible people, forcing banks to increase charges to responsible credit card holders.

The CARD Act has also wiped out many cash-back and rewards programs and rebates on credit cards, something earlier chronicled here.  Despite that fact, its passage was trumpeted by President Obama and liberal congressional leaders, who are engaging in a form of class warfare against financially responsible people.

Earlier, the government pushed through $250 billion in mortgage bailouts, to bail out even reckless high-income borrowers, and forced financial institutions the government took over in the name of fiscal responsibility, like Freddie Mac, to run up billions in losses bailing out irresponsible borrowers.  It also pushed through $70 billion in auto bailouts to enrich the United Auto Workers union, bailouts that ripped off taxpayers and pension funds and illegally diverted funds from the bank bailout to an auto bailout.  (The bailouts would not even have been necessary if the companies had obtained regulatory relief and greater wage concessions, and may not even succeed, requiring billions more in taxpayer dollars by 2010.)

In today’s Washington Post, Allan Sloan writes about how the government has deliberately ripped off responsible people to bail out irresponsible people over the last year, by spending trillions of dollars to force down interest rates.  That has resulted in extremely low interest rates on savings accounts and bonds, while also, to a lesser extent, reducing interest rates paid by irresponsible borrowers, despite their rising default rates.

Congress Moves to Reinflate the Housing Bubble That Caused the Financial Crisis

by Hans Bader on October 19, 2009

in Bailout Watch, Economy, Features, Politics as Usual, Precaution & Risk, Sanctimony, Zeitgeist

Veteran political commentator Michael Barone reports that liberal congressional leaders are pushing policies to “inflate the housing bubble again,” even though “our financial system broke down because we had, thanks to government policies, a housing bubble.”

Congressional leaders are ignoring warnings from experts across the political spectrum, such as conservative Peter Wallison’s October 16 piece in the Wall Street Journal, titled “Barney Frank, Predatory Lender,” and liberal Charles Lane’s recent piece in the Washington Post, “Doubling Down On the Wrong Housing Policy.”  (Wallison, a banking expert, prophetically warned for years about the risky practices of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which were at the core of the financial crisis, and later had to be bailed out by taxpayers at a cost of around $200 billion.)

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

In the Washington Examiner, Meghan Cox Gurdon explains how housing policies affected two sisters, one responsible and one irresponsible.  The financially-irresponsible sister, who was unable to manage her own finances, and had recently defaulted on a small car loan, ended up getting a taxpayer-subsidized mortgage.  Meanwhile, the responsible sister and her husband were unable to obtain a mortgage loan, despite having an “excellent credit rating” and money for a large downpayment.

Obama administration promotes junky, risky mortgages at taxpayer expense, ignoring history’s lessons

by Hans Bader on October 16, 2009 · 5 comments

in Bailout Watch, Legal, Politics as Usual, Precaution & Risk, Sanctimony

George Mason University Professor Ilya Somin explains how the Obama administration is expanding the awful policies that caused the mortgage crisis, like having taxpayers effectively underwrite risky-mortgage loans by bailing out GSEs at a cost of hundreds of billions of dollars.  Now, the administration is stepping up Federal Housing Administration subsidies for risky, junky mortgage loans that are likely to default in large numbers.

(The Obama administration doesn’t seem to have learned history’s lessons overseas, either.  White House Communications Director Anita Dunn cites as her favorite political philosopher the Chinese communist tyrant Mao Zedong. That may explain why it has sometimes pursued left-wing policies overseas.)

President Obama is also pushing for financial regulations that reinforce the worst features of the status quo.  They would increase pressure on lenders to make the risky, low-income loans that helped spawn the financial crisis.  At the same time, they would worsen the credit crunch by shutting down banking operations known as “industrial loan corporations,” that are convenient for consumers.  Earlier, Obama backed a new law that is wiping out many credit-card rewards programs and rebates, and leading to the return of annual fees on some credit cards.

Even though Obama’s proposals would lead to even more junky loans in the future, both he and Senate banking chairman Chris Dodd (D-CT) claim that his proposals would fight the “status quo.”  But they are part of the status quo.  Dodd is famously corrupt, having received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and having received a massive gift from a crook, Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.  Obama was the third biggest recipient in Congress of campaign contributions from the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which went broke, costing taxpayers perhaps $200 billion.  (Fannie Mae was a corrupt bully that engaged in massive accounting fraud and used intimidation to fight reform.)

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

ACORN Sues Whistleblowers for Exposing Its Wrongdoing in Scandal

by Hans Bader on September 24, 2009

in Deregulate to Stimulate, Healthcare, Legal, Personal Liberty, Politics as Usual, Privacy, Sanctimony

ACORN is now suing the whistleblowers who allegedly filmed it promoting illegal sexual activities for $2 million! And not just them, but also the conservative web site that made the video public! ACORN seeks an injunction to silence them — a classic example of an unconstitutional prior restraint.

That’s a flagrant violation of the First Amendment, but the lawsuit was filed in state court in Baltimore, where the judges are very liberal, so who knows if ACORN’s lawsuit will be dismissed. Even if it is, the lawsuit will cost the whistleblowers thousands of dollars in lawyers’ bills. The Baltimore City prosecutor has already expressed hostility to the whistleblowers who exposed ACORN’s wrongdoing, threatening to prosecute them under a state “privacy” law restricting audiotaping.

(Similar “privacy” laws in Massachusetts have been used to shield kidnappers calling in ransom demands, and police abusing motorists!).

I earlier discussed some of the First Amendment issues here. A commenter at National Review argued that the lawsuit is meritless even if you ignore the First Amendment.

The Supreme Court has held that privacy lawsuits, and lawsuits in general, can’t be based on protected speech, in cases like Bartnicki v. Vopper.  That principle was extended by today’s appeals court ruling in Snyder v. Phelps overturning a Maryland jury’s $5 million damage award for intrusion-upon-seclusion, and an earlier ruling limiting state audiotaping laws in Jean v. Massachusetts State Police (2007).

The IRS just ended its controversial relationship with ACORN, which earlier had its housing funds cut-off by Congress over a recent controversy, and is now embroiled in a tax evasion scandal.

ACORN has long received taxpayer money despite a history of financial fraud and voter registration fraud. ACORN helped spawn the mortgage crisis by promoting “liar loans.”

ACORN is a left-wing group that launched Obama’s career as a community organizer. He has long-standing ties to ACORN, and an ACORN affiliate received received $800,000 from Obama’s campaign. ACORN stands to profit greatly from Obama’s financial-regulation proposals, which would strengthen the Community Reinvestment Act (The Community Reinvestment Act is extremely harmful to banks and prudent lending, pressuring banks to make risky, low-income loans).

ACORN affiliates would also likely profit from Obama’s health-care plan, which contains subsidies for community organizers. (Obama’s health care plan would raise taxes, break promises, increase the deficit, destroy many inexpensive health-care plans, and take away important freedoms.)

Yet Another ACORN Scandal

by Hans Bader on September 23, 2009

in Healthcare, Legal, Politics as Usual, Sanctimony

ACORN, which had its housing funds cut-off by Congress over a recent scandal, is now embroiled in a tax-evasion scandal, reports the Washington Times.

ACORN has long received taxpayer money despite a history of financial fraud and voter registration fraud.  ACORN helped spawn the mortgage crisis by promoting “liar loans.”

ACORN is a left-wing group that launched Obama’s career as a community organizer.  He has long-standing ties to ACORN, and an ACORN affiliate received received $800,000 from Obama’s campaign.

ACORN stands to profit greatly from Obama’s financial-regulation proposals, which would strengthen the Community Reinvestment Act  (The Community Reinvestment Act is extremely harmful to banks and prudent lending, pressuring banks to make risky, low-income loans).  Its affiliates and related entities would also likely profit from Obama’s health-care plan.

ACORN’s Empire Will Expand Under Obama’s Health-Care Plan and Financial Rules

by Hans Bader on September 22, 2009

in Deregulate to Stimulate, Healthcare, Legal, Politics as Usual, Sanctimony

Congress recently voted to cut off federal housing funds to controversial group ACORN.  But since most federal money goes to ACORN-related entities and affiliates, not ACORN itself, Congress’s action is expected to have little practical effect. ACORN’s chief defender in Congress, House Banking Committee Barney Frank (D-Mass.), claims that the cut-off is unconstitutional. House Majority Leader Steny Hoyer (D-Md.) suggests that Congress’s action was purely symbolic, and not expected to have any effect on ACORN.

Indeed, ACORN’s empire is likely to expand thanks to pending legislation to broaden its and its affiliates’ ability to shake down banks. ACORN, a beneficiary of many welfare and war-on-poverty programs, is a “creature of the Community Reinvestment Act” (CRA), which allows groups like ACORN the ability to shake down banks seeking to obtain regulatory approvals, by accusing them of making insufficient low-income loans.

The Community Reinvestment Act was a key contributor to the financial crisis, because it forced banks to make risky, low-income loans.  Yet Obama is now proposing a new agency to more stringently enforce it without regard for banks’ financial safety and soundness.  Obama’s Congressional allies are working to expand the CRA’s reach and make it “explicitly race-based.”

ACORN may also benefit from the Obama health-care plan, which contains subsidies for community organizers like ACORN. While funneling money to community organizers like ACORN, Obama’s health care plan would raise taxes, break promises, harm people with insurance, explode the budget deficit, destroy many inexpensive health-care plans, and take away important freedoms.

While enriching ACORN, Obama’s proposed financial rules overhaul does absolutely nothing about the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” The mortgage crisis was caused partly by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and by federal affordable-housing mandates, which created an artificial market for junky sub-prime mortgages.

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt political status quo, Chris Dodd and Barney Frank.

Obama Seeks to Mandate More Risky, Low-Income Loans by Banks, in New Financial Rules

by Hans Bader on June 17, 2009 · 11 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Legal, Politics as Usual, Precaution & Risk, Regulation

The President has just announced proposals for a major overhaul of the financial system. The proposals would force banks to make even MORE risky loans to low-income people. Even liberal newspapers like the Village Voice have admitted that “affordable housing” mandates are a key reason for the housing crisis and the massive number of defaulting borrowers. But Obama will not accept this reality. Instead, he wants to create a new “Consumer Financial Protection Agency” to rigorously enforce regulations pressuring banks to make loans to low-income borrowers, such as the Community Reinvestment Act. (Obama once represented ACORN, which pressures banks to make risky loans).

In explaining why there is supposedly a need for this new agency, when other agencies already enforce the Community Reinvestment Act and fair-lending laws, his regulatory blueprint complains that “State and federal bank supervisory agencies’ primary mission is to ensure that financial institutions act prudently, a mission that, in appearance if not always in practice, often conflicts with their consumer protection responsibilities.” (Pg. 54).

In other words, the power to force banks to make low-income loans should be given to an agency that has no duty to ensure prudent lending or to take into account the effects of such requirements on banks’ stability or viability.

The President also wants to give financial regulators the power to seize key companies to prevent real or imagined “systemic risks” to the financial system. These are the same federal regulators who used the AIG bailout to give billions in unnecessary payments to Goldman Sachs, which neither needed nor expected that much money, and forced Freddie Mac to run up $30 billion in losses to bail out deadbeat mortgage borrowers. This is the same federal government that took over Chrysler and General Motors, and then used them to rip off pension funds and taxpayers and enrich the UAW union.

(There is one good thing in the President’s proposals, though: they get rid of the inept Office of Thrift Supervision, which poorly supervised savings and loans and AIG, and gives most of its responsibilities to the Office of Comptroller of the Currency, which competently supervises national banks.)

Obama’s regulatory blueprint disingenuously claims that the Community Reinvestment Act, which pressures banks to make low-income loans, can’t have contributed to the mortgage crisis, because it existed for years before the crisis began. But it is not the Act’s passage, alone, that economists credit with causing the mortgage crisis, but rather the unrealistic regulations adopted to implement the Act many years after the Act’s passage. Those regulations went into effect not that long before the mortgage bubble began, as historian Clayton Cramer notes. Economists, investment bankers, and historians have long noted the role of the Community Reinvestment Act and its regulations in promoting the risky lending that spawned the financial crisis. Investors Business Daily has chronicled how “the Community Reinvestment Act” pressured lenders to make the risky loans that led to the mortgage meltdown.

The current mortgage crisis came about in large part because of Clinton-era government pressure on lenders to make risky loans in order to “make homeownership more affordable for lower-income Americans and those with a poor credit history,” the DC Examiner notes. “Those steps encouraged riskier mortgage lending by minimizing the role of credit histories in lending decisions, loosening required debt-to-equity ratios to allow borrowers to make small or even no down payments at all, and encouraging lenders the use of floating or adjustable interest-rate mortgages, including those with low ‘teasers.’”

The liberal Village Voice previously chronicled how Clinton Administration housing secretary Andrew Cuomo helped spawn the mortgage crisis through his pressure on lenders to promote affordable housing and diversity. “Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down . . . Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.” (See Wayne Barrett, “Andrew Cuomo and Fannie and Freddie: How the Youngest Housing and Urban Development Secretary in History Gave Birth to the Mortgage Crisis,” Village Voice, August 5, 2008).

In drafting his financial regulation proposals, Obama has turned to Barney Frank and Chris Dodd, lawmakers who are among those most culpable in spawning the financial crisis. The New York Times reports that “the plan is largely the product of extensive conversations between senior administration officials and top Democratic lawmakers — primarily Representative Barney Frank of Massachusetts and Senator Christopher J. Dodd of Connecticut.” Frank and Dodd were the lawmakers who defeated reform proposals to rein in the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which later had to be bailed out for hundreds of billions of dollars. Fannie Mae killed reform proposals by paying off liberal lawmakers and bullying critics. Dodd recently attracted criticism for financial and ethical lapses.

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 last year 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.”

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.

Banks get sued for discrimination no matter what they do. If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans.

But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble. Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.

The Washington Post reported that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans. The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years. They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”

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