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Blame Game

October 09, 2008

The ongoing economic calamity has brought out plenty of bad attitude.  But it's hard to top this rubbish from Ann Coulter's blog with the subtle title, They Gave Your Money to a Less Qualified Minority:

"This crisis was caused by political correctness being forced on the mortgage lending industry in the Clinton era. "Before the Democrats' affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress "mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. "Under  Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton's secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low- to moderate-income borrowers by the year 2001... "Now, at a cost of hundreds of billions of dollars, middle-class taxpayers are going to be forced to bail out the Democrats' two most important constituent groups: rich Wall Street bankers and welfare recipients. "Political correctness had already ruined education, sportsscience and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry."

It's hard to imagine a baser, more racist approach to this crisis.  Never mind that minority homebuyers and the neighborhoods where they live are among the biggest victims in this mess.  Never mind that the Congress was firmly in Republican hands for much of the last 8 years, and that the Bush Administration has had control over the regulatory agencies for all of them.  In Coulter's world, Democrats and their handmaidens led the economy over the cliff by diverting "your" money to "those people."  Willie Horton, phone home.

There has been a steady chant across the conservative blogosphere blaming everything from CRA to Fannie Mae and Freddie Mae to low income and minority borrowers for the current crisis.  Apparently any participant in the market will do for these critics except the real culprits - unregulated, fee-crazed brokers, Wall Street securitizers, and the mortgage bankers who facilitated the transfer of the latter's money into the former's hands.  Why aren't we hearing about Ameriquest, Option One, New Century and all the other lenders who had to settle with various state attorneys general over their abusive lending practices before vanishing in a mushroom cloud of exploding subprime mortgages?

Why don't so-called conservatives focus on the real abuses in the originations market that ballooned into a repayment crisis?  Like:

  • Loans where you don't have to state your income?
  • Loans where you can't possibly qualify for the rate in Year 3, after the first two years' teaser rates vanish?
  • Loans for homes sold like loans for cars, as in "how much could you pay a month for this house? Okay, I can do that for you."
  • Loans with prepayment penalties that make it nearly impossible to refinance the loan if needed?
  • Loans that look like they have 20 percent down payments where there actually are other, even more expensive loans added on top to cover this?

Coulter, like many other conservative commentators, blithely ignores how bipartisan the push to increase homeownership was.  Increasing minority homeownership was a priority for the Clinton HUD.  And it also was one of the cornerstones of President Bush's "Ownership Society."  The housing goals Coulter references were hiked much higher by the Bush Administration in 2004 than in 2000. 

I happen to think that the broad intent of the efforts to increase minority and low-mod participation in homeownership was laudable.  Others may disagree. But it's absurd and misleading to assert, as Coulter does, that it was a partisan issue in the first place. 

She's also wrong about regulation.  Subprime lenders were not responding to regulatory pressure.  They weren't subject to any.  They were almost entirely outside of the banking regulatory structure.  Some of their business came from borrowers who could have qualified for much better terms with a prime, conventional mortgage.  But brokers could make a lot more in fees by selling subprime products.  So that's what they sold.  As house prices continued to escalate, these lenders began adding more and more layers of risk to qualify borrowers and keep their own paychecks coming.  Other borrowers were victimized by unscrupulous lenders who defrauded them and the investors who bought the mortgages. 

When states did try to impose regulatory constraints, subprime lenders fought back relentlessly.  When Congress considered a federal response, they did everything they could to stymie that, too.  Federal regulators belatedly imposed new guidance on banks in 2006, after many had acquired subprime subsidiaries or were themselves following the herd into these risky products to maintain market share. Among these new rules was a directive to lend only where there was a reasonable expectation that borrowers could repay the loan.  This seems like common sense.  But by then the bubble was almost fully inflated, and the damage had been done by lenders who had not followed that simple rule. 

There are plenty of good rebuttals to Coulter's and others' nonsense throughout the Web.  Here are some recommended samples:

The Big Picture

Ellen Seidman at New America Foundation

Business Week

David Abromowitz

Newsweek Online

McClatchy News Service

This cogent Atlantic Online piece documents the organized efforts by Republicans to try to pin this crisis on anyone but the Bush Administration. For a mordantly funny take on all this, download this cartoon.  It's a Word document, and will take a few moments to download.  But it's worth it.


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