Obama Wrong: Housing, Not Tax, Policy Caused Recession

Paul Sperry, Investor’s Business Daily, December 4, 2012

President Obama argues Republicans want to go back to pre-recession policies of cutting “taxes for the folks at the very top” and rolling back “regulations on big banks.”

He warned: “We tried that top-down approach. It’s what caused the mess in the first place.”

Did it, though?

Most economists agree the recession was caused by the subprime mortgage crisis, which had little if anything to do with tax policies.

{snip}

So what killed housing?

To hear Obama, greedy bankers were allowed to run amok, rubber-stamping loans for practically anyone with a pulse.

He’s right that underwriting was a joke, and as someone who advocated for easier home lending, he would know.

{snip}

Only, it wasn’t because regulators looked the other way. Quite the opposite; they encouraged lenders to make risky loans.

Shoddy subprime lending expanded due in large part to federal housing regulations that institutionalized “flexible” mortgage underwriting standards for loan originators and government-backed mortgage giants Fannie Mae and Freddie Mac.

And they, under pressure from Congress and their Housing and Urban Development “mission” regulators, wound up underwriting nearly half the risky subprime and other nonprime mortgages outstanding, fueling the financial market for subprime securities.

While Bush is commonly blamed for the historic housing bubble that burst in 2007, housing experts now agree it began 10 years earlier in 1997—under a Democratic administration.

The easy-credit orgy that took place over that decade was fed by federal housing policies designed to pump up homeownership rates.

It had a name: the National Homeownership Strategy.

In the mid-1990s, for his part, President Clinton took more than 100 specific executive actions to pry bank lending windows open for previously unqualified borrowers.

For starters, he marshaled 10 federal agencies under the little-known Interagency Task Force on Fair Lending to enforce new “flexible” mortgage underwriting guidelines to combat “lending discrimination in any form.”

For the first time, banks were ordered to qualify low-income minorities with iffy credit.

{snip}

The 1994 policy, which remained in effect during the Bush administration, planted the seeds of the mortgage crisis, as lenders abandoned traditional underwriting standards altogether. Clinton even convinced Federal Reserve Chairman Alan Greenspan to appear in a video commanding all member banks to comply with the administration’s new minority-friendly lending guidelines.

The next year, Clinton set numerical targets for lending in predominantly minority Census tracts under a revised Community Reinvestment Act, and added several hundred bank examiners to enforce the tougher CRA rules. Banks that failed had their expansion plans put on hold, a slow death sentence in an era of frenzied bank mergers and acquisitions.

For the first time, CRA ratings were made public, egging on Acorn and other radical inner-city groups that used the reports to extort banks for more than $6 trillion in subprime and other loan set-asides by 2008.

When bankers resisted being saddled with so many additional risky loans, Clinton tapped Fannie Mae and Freddie Mac to take them off their books, while freeing bankers to originate more of the political loans. He directed HUD to hike Fannie’s and Freddie’s goals for underwriting affordable loans, which remained in force throughout the 2000s.

{snip}

A 2005 HUD report attributed the explosion in subprime securities from 2001 to 2004 to HUD’s tougher goals, along with tougher CRA enforcement.

From 2004 to 2006, moreover, the mortgage giants together bought $613 billion, or 20%, of the private-market securities created to meet their demand under HUD rules.

“Lenders have been encouraged by HUD and banking regulators to increase lending to low-income and minority households,” the HUD report stated.

“Sometimes these borrowers are higher risk, with blemished credit histories and high debt or simply little savings for a down payment.”

For good measure, Clinton late in his second term installed several political appointees—including Franklin Raines and Jamie Gorelick—on the inside of Fannie and Freddie. They in turn bought loans from Countrywide Financial and other subprime lenders that signed “fair lending” contracts with HUD obligating them to meet separate urban lending quotas.

{snip}

By 2004, powerful Democrats in Congress such as Rep. Barney Frank were ratcheting up pressure to buy riskier mortgages for the “underserved.”

That year, Fannie Chairman Raines begged mortgage bankers gathered in San Francisco for more subprime loan production: “We have to push products to people who have lesser credit quality.”

In 2007, even as subprime mortgages were defaulting, Fannie CEO Daniel Mudd assured Frank in testimony in front of his House Financial Services Committee that Fannie had continued its “entry into the subprime market, which helped us meet our HUD affordable housing requirements.”

Freddie CEO Richard Syron also loaded up on subprime securities to meet HUD quotas.

“We bought them for goal purposes,” he explained to investors gathered at a Goldman Sachs & Co. Financial Services Conference in New York in December 2007.

{snip}

Thus the government, through its housing policies, created a feeding frenzy for subprime loans.

In fact, it put Fannie and Freddie and private lenders in competition for them. All were under pressure to hit affordable housing targets enforced by HUD and by Treasury (through its army of CRA examiners), with intense oversight from affordable-housing advocates in Congress. The more subprime mortgages they underwrote, the more points they earned with regulators.

The Justice Department also played a key role in the subprime scandal.

Federal prosecutors sued banks and lenders for allegedly discriminating against minority borrowers, driving banks and mortgage lenders alike deeper into risky territory.

{snip}

Aggressive action in the 1990s under Attorney General Janet Reno—and her deputy, Eric Holder—led to permanent changes in lending practices.

To guard against charges of racial bias, lenders set up “fair lending review boards” solely for the purpose of giving rejected minority loan applicants a “second look.”

Together, these federal policies for the first time threw millions of previously unqualified buyers into the mortgage mix.

“Over the past 10 years, there has been a ‘revolution in affordable lending’ that has extended homeownership opportunities to historically underserved households,” HUD trumpeted in 2004. “Fannie Mae and Freddie Mac have been a substantial part of this ‘revolution.’ During the mid-to-late 1990s, they added flexibility to their underwriting guidelines (and) introduced new low-down-payment products.

“Data suggest that the industry and (Fannie and Freddie) initiatives are increasing the flow of credit to underserved borrowers,” the HUD report continued. “Between 1993 and 2003, conventional (non-FHA) loans to low-income and minority families increased at much faster rates than loans to upper-income and nonminority families.”

{snip}

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  • Puggg

    Of course he’s wrong, but if he admits it, he admits the folly of affirmative action. On the other hand, if he gets the Republicans to sign on to as much as one rate increase (i.e. not elimination of deductions and loopholes), then he has a “confession” from them that tax policy, namely theirs, caused the recession.

    • So CAL Snowman

      Those republicans are sure one hell of an opposition party. The defenders of the Alamo offered more resistance than these modern day pukes.

    • http://countenance.wordpress.com/ Question Diversity

      I’ve been thinking about that theory. Sure, Obama might gloat if that happens, but if all that happens is that the top marginal rate goes up a few percent on very high incomes (over $2-$3 million, e.g.), I doubt it will profane the whole concept of tax cuts in the minds of most people.

  • You Are Now Enriched

    Paul Sperry will be the next name to be added to the SPLC Hate Watch list.

    • StillModerated

      It’s spelled $PLC.

  • KD_Did

    For the first time, banks were ordered to qualify low-income minorities with iffy credit.

    Banks being “ordered” to loan to high credit risks doesn’t sound like capitalism to me. That’s what is being blamed though. The bundled mortgages were sold to hedge against this risk.All created by govt. for minorities.

    • So CAL Snowman

      Sounds like Totalitarianism to me comrade

    • http://twitter.com/seedymedia r j p

      Sold the mortgages to Fannie Mae and Freddie Mac, two of the most “diverse” companies in the US …… which got delisted by the NYSE when their stock price effectively went to $0.00.

    • Bobbala

      That would be fascism.

  • StillModerated

    Way back in 2006-7 when Congress was busy grilling pro baseball players about steroid abuse, Public Service Announcements began airing on AM radio stating that home-ownership was at at all time high, but (boohoo) minorities needed to catch up. Well, bankers, being no fools, feared being dragged before Congress on implied charges of racism; so, they created mortgage/loan consolidation packages — usually with an adjustable rate to get blacks and Hispanics into leveraged houses. Builders went crazy slapping up $200K homes which would sell for $600K. Very profitable — at least in the beginning.

    However, within a couple of years, these new homeowners once again racked up their credit card debts, bought Escalades and Benzes and Bimmers, flashy rims, fur coats, etc. and fell behind on house payments when their ARMs went up. Then began the foreclosures, and the whimpering about being tricked into signing, and calling their politicians for help.

    Who do I blame? The media and the politicians.

    But I’ll let John Bird and John Fortune explain it to you.

    http://www.youtube.com/watch?v=mzJmTCYmo9g

    • So CAL Snowman

      You are a racist if you don’t give an unqualified hispanic/black a loan for a house which you know will never be paid back. You are racist if you give a hispanic/black a loan for a house which you know will never be paid back.

      • StillModerated

        So I’m a racist, eh? Guess what — that insult cannot hurt me anymore. Screw guilt!

        • Triarius

          It was sarcasm.

        • Sherman_McCoy

          Yes, I always say, “Thanks for noticing.” But then, I am not so sure. I loathe blacks, and most browns, but other groups, not as much.

  • The__Bobster

    So what killed housing?

    No, it’s “who killed housing?” Why, it was the lying HNIC hisself.

    http://stubbornfacts.wordpress.com/2008/10/10/obama-was-co-counsel-against-citibank-in-1994-suit-for-red-lining-can-you-say-acorn/

    Obama Was Co-Counsel Against Citibank in 1994 Suit for “Red-lining” – Can You Say ACORN?
    Posted on October 10, 2008 by Stubborn_Facts

    Senator Obama Has Said He “Never Organized With ACORN” or “Worked For Them in Any Capacity” and Has Pointed Fingers at Wall Street and Bush’s Policies, Anyone, and Everyone But Himself (or His Own Party) in the Sub-Prime Mortgage Mess…

    But His Associations and Prior Activities Put in Him Directly At Ground Zero of the Financial Crisis and Only Raise Many More Questions

    On June 12, 2008, Democratic Presidential Candidate Barack Obama’s campaign set up a website dedicated to fighting “viscous rumors” about the candidate. The site, entitled “Fight the Smears” seems to have a “smear du jour” which it addresses and lists nineteen separate issues on which the campaign apparently feels its candidate has been unfairly “smeared” to date. For instance, the issue of the day, October 9, regards Sen. Obama’s “tangential” relationship with unrepentant Weather Underground terrorist-turned Professor of Education and author, William Ayers.

  • pcmustgo

    I remember hearing so many ads on “urban” radio about buying a home, and home ownership and “everyone should own a home” and own a home for the same amount as renting, etc.

    Many people are clueless about the extra money involved- maintenance fees if it’s an apartment, property taxes, paying heat/water bills, having money for repairs, etc.

    • Formerly_Known_as_Whiteplight

      Don’t you remember GW Bush actually saying this? I do and more than once. It pumped up the economy and made him look good after 9/11.

      • The Verdict of History

        Yes… the bubble continued to grow and peak through 06, and finally declined in late 07… sad story… culprits on both sides.

        • Formerly_Known_as_Whiteplight

          Even my sweet, little community bank was doing it. They offer my wife and I a no income stated, signature only loan in 2005. They were enabling the disgusting real estate hustlers and other individuals that were flipping home like pancakes. We just would not participate in this sell out of America and what remained of ethics in business here.

    • Michael_C_Scott

      Aside from the down-payment, there’s no extra money involved in home-ownership versus renting. All the costs of maintenance and property taxes in an apartment complex are passed on to the tenants.

      My first late autumn in 1996 after I bought my townhouse, the heat tried to come on, but a 50-cent fuse saved itself by allowing a 200-dollar circuit to blow out. I smiled when I paid, because it’s still better than renting.

      I was once thrown out of an apartment complex for having “too many guns”. I had fielded worries from the earlier property management company by giving them a photocopy of my FFL “03 Curios and Relics” license, as deliveries of firearms and heavy crates of ammunition were usually left at the office while I was at work. The next managers didn’t look into their own files, and when some dumb-o-rats from the Abbot Fire Extinguisher Company went about to check the fire extinguishers, they reported I had guns, guns, ammo, guns, ammo and more guns, and that was just the stuff that wasn’t locked up in safes.

      I paid off my mortgage in August 2004, so aside from property taxes, I don’t live here at someone else’s whim.

      When ATF was here a year ago from Sunday (Dec 16), I think they were after the coilgun. The warrant was deliberately vague, and Sarah Pelton had Federal Magistrate Michael Watanabe sign it, and he will sign literally anything, but officials do need a warrant. Nobody will ever have a pretext like “checking fire extinguishers” and nobody will ever make a living kicking down my front door. They waited until I had left the house and six of them pulled me over. Nobody can make a living breaking down doors.

      Home ownership means relative privacy, and that is priceless.

      • pcmustgo

        Not the case in NYC or other more expensive real estate markets where renting may indeed be more money-smart than owning, depending on your station in life, depending on your income. The apartment I rent has no maintenance or repair fees, I don’t pay for heat or water or garbage pick up or any of that.

  • Formerly_Known_as_Whiteplight

    This article not so cleverly leaves out the HUGE fact that President G W Bush used this set up to give the economy a false boost after 9/11. He blantantly encouraged it and said publicly, more than once that, “now every American could realize the American Dream of home ownership.” The corporations and banks jumped in and created the derivatives market so that it could all be expanded to unimagined sizes with home prices inflation a go, go!

    It wasn’t just a liberal creation.

    • fakeemail

      Yes, I remember Dubya touting how minority home ownership was at record highs. He and Rove fully supported subsidizing all this and had the idiotic idea that ownership would make more non-whites into Republicans. I’ve come to truly hate Bush. He did virtually *everything* wrong. He damaged us more than Clinton.

      • Formerly_Known_as_Whiteplight

        But let’s not be one sided about it. I knew and witnessed so many cases of whites flipping homes, white real estate agents reveling, with their “blood up” with greed, and plenty of whites signing on for homes they couldn’t afford. It was like a big pyramid, ponzi scheme. I knew that many would be left when the game was over. It was easy to predict the recession of 2008. But regardless of the moment, another huge one is coming later on and it will be the start of the collapse that will bring on CW2 and world wide chaos.

        • Michael_C_Scott

          “It was like a big pyramid, ponzi scheme.”

          The words you are looking for are “speculative bubble”.

          • Formerly_Known_as_Whiteplight

            No, they aren’t. I was looking for words that invoke the flat criminality and irresponsibility of it all. Speculative bubble sounds too dignified. Thanks anyway.

          • Michael_C_Scott

            The same thing happened with small company high-tech stocks in the 1990s, with the same speculative money driving it, and the same thing is happening with commodities prices today.

            Artificial government-induced distortions in lending prices made the mortgage meltdown worse, but didn’t cause it. I remember some white dim-bulb crying because she had cashed in her 401(k) and IRA to buy Phoenix-area real estate just to flip it, and she lost everything. It wasn’t dumb-o-crat and neo-con social engineering that caused the floon to dump her retirement this way; it was her own greed and stupidity. A speculative boom in real estate is never, ever a bright thing to get involved in. We have a thing called a “construction industry”, you see, and they went into overdrive building unneeded units so they could cash in as well. This also made the inevitable correction less gentle than with a less maniacally pathalogical speculative boom.

          • Formerly_Known_as_Whiteplight

            No doubt about it, crooks have always been present to push ethics aside for the sake of greed and gain. However, I would say that this one soared (or plunged) to greater heights than ever.

            Construction industry; it’s worse than that. In my area some contractors built swathes of homes on speculation, then when they got the government insurance funds for the default due to lack of a sale, would gut them, appliances, water heaters, stoves, heating/cooling systems, etc., and use them for the next project and repeat. Portland, OR had an entire suburb project sitting entirely empty, for blocks. I don’t know what’s been done with them since, but you know who got screwed, don’t you?

    • Dan Reardon

      I’m no fan of Jorge Bush but I recall watching a you-tube video where the Bush administration was vilified as racist by Maxine Waters and company for trying to end this loan practice.

      • Formerly_Known_as_Whiteplight

        That doesn’t negate the fact that he encouraged, publicly, the real estate activity that drove the entire mess of the 2000s. I cannot answer for what you claim, but I know what I read and heard right out of his mouth. Maxine Waters on the other hand, would think it is racist to not give blacks homes for a dime as part of the reparations that she thinks must be eternal.

    • Seek

      This “dream,” by the way, was pushed by several other Republican geniuses, specifically, Grover Norquist, Karl Rove and Jack Kemp. Each is a disaster for the party.

      • Formerly_Known_as_Whiteplight

        Karl Rove used to be considered the genius of the Republican party. I recognized him early on as the man who was first to go to the lowest, most dirty political attacks, setting one new ethical low after another. There is blame enough to go all around.

  • IstvanIN

    Our economic mess is due to a lot more than just the housing melt-down. The list of everything the feds have done to destroy the economy over the last 40 years is quite long. Everything from unsustainable immigration to a lack of energy policy to the break up of the Bell System and on and on has contributed to the break down of the US economy.

    • Sherman_McCoy

      Exactly. See my comment. it’s one of the reasons I never listen to Fox or CNN. Neither of them get it.

  • JDInSanDiego

    The “subprime mortgage crisis” was preplanned wealth redistribution. The government ordered the banks to give out risky loans. The banks said that’s too risky. The government said “don’t worry, Fannie Mae and Freddie Mac will insure you.” The minorities all “happened” to default at the same time. The taxpayer paid back Freddie Mac and Fannie Mae. Freddie and Fannie paid back the banks and the minorities got practically free houses.

  • bigone4u

    Minorities were encouraged to sign up for loans for houses they could not afford in order to integrate more all and nearly all white neighborhoods. It was sold to idiot whites as a compassionate, egalitarian thing to do. Now we have vacant houses in every neighborhood. I suspect that many whites sold their $200k houses to buy a $300k house they could not afford in order to escape the influx of people with alien values. So whites along with minorities got foreclosed on. Cable TV signed on with all those home buyer shows that portrayed a mixed race couple or a single black woman buying her first house for a mere $200k, justified by her need to house her rag tag crew of little ones. The shiiiite for brains legislators who make the laws rarely see or simply don’t want to see the end game–first a huge run up in house prices followed by a massive collapse. Are they stupid or evil? I vote for both.

    • StillModerated

      Stupid Party = GOP, Evil Party = Democrats. So when something is both stupid and evil, it can be safely labeled bipartisan.

      • The Verdict of History

        Hope this gets converted to T-shirt, bill boards, hats, bumper stickers, political campaign sign… ect.

    • Joseph

      Geez no kidding. Those house and decorating shows are nearly always a 30 min. diversity and inclusion commercial. “Ch’lamydia Jones is a busy single-mom with two rambunctious boys who love to play basketball who wants to move into a larger place from their 1900 square foot bungalow. On a tight budget, she is looking for a home in the $360-400 k range with a backyard and off-street parking”.

      • WHITE HORSE

        Right……so her boys can study the SAT tests for the Harvard admissions, )even though they have already been granted a full scholarship and private tutors under the “no black child left behind Harvard” program for “qualified” students who have been denied a college education due to White Institutional Racism.)

        The will major in EQUALITY and take such courses as Women’s Studies, Hispanic Studies, African Studies, Asian Studies, Chicano Studies, Latino Studies, etc. where they will learn that we are all equal and should never be judged by race since there is no such thing as race…………………

        • Michael_C_Scott

          You forgot Gay/Lesbian/Bisexual/Transgendered Studies.

  • fakeemail

    White People Not on Welfare = Millionaires and Billionaires.

  • APaige

    Also in order to expand by taking over other institutions, banks had to ‘prove’ they did not discriminate against “minorities (those with bad credit). This lead to banks that took the most risk getting bigger. That is how WAPA went from a small local bank to a regional power with plans of becoming national. It failed.

  • tickyul

    Fannie and Freddie artificially inflate the price of a home. The corrupt politicians want you to be beholden to them. So they make all of these scammy programs to counteract the bloated price of housing. They gain power and control and get to implement their warped ideology. Plus it is a great talking point for the Scumaticians…..”Americans among the richest people in the world”…..too bad those stats are based on artificially bloated housing prices.

  • http://www.facebook.com/people/Vito-Danelli/537214166 Vito Danelli

    Sadly, Investors Business Daily, along with Paul Sperry and El-Rushbo, are in denial about the role of George W Bush in the subprime mortgage disaster. Check out the following links on Bush’s “Homeownership Society” initiative:
    1. Video highlights of the speech:

    http://www.youtube.com/watch?v=kNqQx7sjoS8

    2. Link to the entire speech:

    June 17, 2002 (!!!!)

    President Calls for Expanding Opportunities to Home Ownership
    Remarks by the President on Homeownership
    St. Paul AME Church
    Atlanta, Georgia

    http://georgewbush-whitehouse.archives.gov/news/releases/2002/06/20020617-2.html#

    3. White House position papers:

    A Home Of Your Own:
    Expanding Opportunities for All Americans

    http://georgewbush-whitehouse.archives.gov/infocus/homeownership/toc.html

  • ageofknowledge

    Obama’s a modern liberal lawyer and community activist. He’s not fluent in economics, accounting, etc…

  • Sherman_McCoy

    Sigh. The housing crisis is just one of many symptoms of what is wrong with America. Ultra low interest rates were designed to disguise the real economic state of the US, and the resulting temporary housing boom was used (among other things) to “spread the wealth” among the undeserving.

    The real problem with the US economy is globalization, i.e., the export of factories and jobs (especially the high-paying jobs) and the importing of cheap non-white laborers. When one adds AA and the resulting lawsuits that go along with it, it is easy to see why the US is in the toilet.

    I see no alternative to either fleeing the country (as I did), or moving to a mostly white enclave and laying aside gold, guns, and groceries. (Or bullion, bullets, and beans).

    But I am hanging onto my Texas DL and proof of residency. Although whites are in the minority there, the darkies seem to be fairly well behaved, perhaps because of the right to carry laws. Then again, I’d stay away from South Dallas and the Garland areas.

    • IstvanIN

      Yup, our economy has been and is being deliberately destroyed.

  • DudeWheresMyCountry?

    Social engineering is evil and not the role of the government. The suppression of free market capitalism is what happened. Obama isn’t as smart as his disciples want to believe but he is smart enough on this issue to know he is lying.