Who’s To Blame For The Housing Crash?

Dennis Prager recommends these three books: Architects of Ruin: How big government liberals wrecked the global economy—and how they will do it again if no one stops them by Peter Schweizer, Paul Sperry’s The Great American Bank Robbery: The Unauthorized Report About What Really Caused the Great Recession, and Tom Sowell’s The Housing Boom and Bust.

Dennis: “If you need to just read something briefly, go to the Community Reinvestment Act in Wikipedia and read about the regulatory changes made in 1995 by Bill Clinton, the father of the disaster, who then has the chutzpah to yell at Wall Street. I’m no fan of bankers. They’ve wasted trillions in awful loans to countries that should never have gotten those loans. They know that their banking institutions are so vital to society that they will never pay the price personally for the incompetent loans they’ve made.”

“The government forced banks to give crappy loans lest they be punished financially and otherwise, have their reputations smeared as racist unless they gave loans in communities where a lot of people could not afford those loans. Then Wall Street took these toxic loans and put them in bundles with things not toxic and things blew up.”

Peter J. Wallison writes in the WSJ today:

Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

About Luke Ford

I've written five books (see Amazon.com). My work has been covered in the New York Times, the Los Angeles Times, and on 60 Minutes. I teach Alexander Technique in Beverly Hills (Alexander90210.com).
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