I know, shocking — particularly because we know that Big Government, ever our savior, is aligned with the 99% against the monocled corporate fat cats and be-spatted bankers who are hoarding all the wealth, leaving children to starve and old people without free diapers. IBD:
[…] what if government encouraged, even invented, those “abusive practices”?
Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rates — and launched what would prove the costliest social crusade in U.S. history.
At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.
The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.
The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.
“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.
Ludwig at the time stated the ruling would be used by the agencies as a fair-lending enforcement “tool,” and would apply to “all lenders” — including banks and thrifts, credit unions, mortgage brokers and finance companies.
[…]
For the first time, Washington’s army of bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press.
“HUD is authorized to direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand or settlement, against lenders found to have engaged in discriminatory lending practices,” the official policy statement warned.
The regulatory missive, which had the effect of law, advised lenders to bend “customary” underwriting standards for minority homebuyers with poor credit.
“Applying different lending standards to applicants who are members of a protected class is permissible,” it said. “In addition, providing different treatment to applicants to address past discrimination would be permissible.”
To that end, lenders were directed to “make changes in marketing strategy or loan products to better serve minority segments of the market.” They were also advised to “change commission structures” to encourage brokers and loan officers to “lend in minority and low-income neighborhoods” — a practice Countrywide Financial, the poster boy of the subprime scandal, perfected. The government now condemns the practice it once encouraged as “predatory.”
FDIC warned banks that even unintentional discrimination was against the law, and that they should be proactive in making “multicultural” loans. “An ounce of prevention is worth a pound of cure,” the agency said in a separate advisory.
Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a “fair-lending tool kit” to every member. The Mortgage Bankers Association of America signed a “fair-lending” contract with HUD. So did Countrywide.
HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.
“Lenders should ensure that their loan processors and underwriters are aware of the provisions of the secondary market guidelines that provide various alternative and flexible means by which applicants may demonstrate their ability and willingness to repay their loans,” the policy statement decreed.
“Fannie Mae and Freddie Mac not infrequently purchase mortgages exceeding the suggested ratios” of monthly housing expense to income (28%) and total obligations to income (36%).
It warned lenders who rejected minority applicants with high debt ratios and low credit scores to “be prepared” to prove to federal regulators and prosecutors they weren’t racist. “The Department of Justice is authorized to use the full range of its enforcement authority.”
It took a little more than a decade for the negative effects of the assault on prudent lending to be felt. By 2006, the shaky subprime mortgages began to default. In 2008, the bubble exploded.
Clinton’s task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.
And it’s still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.
As IBD first reported in July, Attorney General Eric Holder has launched a witch hunt vs. “racist” banks.
“It’s a more aggressive fair-lending enforcement approach now,” said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. “It is well beyond anything we saw during the Clinton administration.”
Tom Perez, assistant attorney general for civil rights, recently testified that his division “continues to participate in the federal Interagency Fair Lending Task Force.” And he and the task force are working with the newly created Consumer Financial Protection Bureau to “enhance fair-lending enforcement.”
The fair-lending task force’s original policy paper undercuts the notion the financial crisis was all about banker “greed,” though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.
In a postmodern world, a “post-racial” President is a dedicated racialist, and his post-racial DOJ is dedicated to determining justice on the basis of one’s skin color.
So much for dreams.
Please: if you haven’t yet done so, read and familiarize yourself with both Injustice and Reckless Endangerment. 2012 is coming up fast.
(h/t afs)
Clinton was extending a framework put in place by Jimmy Carter, history’s greatest monster.
Aided and abetted by the Bushes, too. Nice guys, but not too bright.
And of course, Barney Fwank and his Madam boyfriend…
Again, I’ll link my summary of Steve Malanga’s “Obsessive Housing Disorder” in City Journal.
The lessons from history were clear and recent, but nevertheless ignored, because the short-term political gain is too tasty for these blackguards to pass up.
It’s amazing to me that this is news to anyone.
Well, that certainly clears up that whole calling your dog controversy.
Now I guess the only question is, if you are unintentionally racist in the forest and no one hears it, is it still against the law?
[…] mention Warren, because Jeff posted this today: Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender […]
@mojo: Don’t forget Chris Dodd.
One hopes he’ll have to flee the country some day, to shelter in his “cottage” in the west of Ireland. Mind you, if he does, he’ll raise the quality of criminals in both Connecticut and Connemara.
@LBascom: And there goes “mens rea”.
Not that it was ever important….
I agree, Jeff. Reckless Endangerment is a must-read, especially this part:
The Financial Crisis Inquiry Commission largely agreed with this assessment of how to allocate blame for the crisis:
So, yeah, no. That smoking gun? More like a steaming pile.
Yeah, Dweller Ysul. That’s right. Nothing to see here. The bankers and the speculators did it, and the government played no real role. That’s the message of Reckless Endangerment, and you would never engage in any kind of selective editing (By the way, I know it’s tough, but next time, try taking out “partners” in the opening sentence. Because it leads one to ask, “partners with whom, I wonder?” And then it’s all downhill for you from there).
Honestly. Does this kind of thing work at other blogs when you drop it into the comments?
So much for dreams.
Who needs MLK’s dream, when you can have the Dreams of My Father instead? Never mind that Dad dreamed of Stalin a lot…
Here, allow me to quote from RE, too, Dweller:
It is amazing how many folks think government controlling business is somehow different from business controlling government.
Funny you should say that, Jeff, because I’m quite certain the “Dweller Ysul” comment is a complete cut-n-paste from Media Matters. And I definitely have seen it elsewhere.
What drives me a little crazy about this is why people think that a bank would want to lend money to someone they know is going to default.
That is literally one of the most stupid things you can do as a bank. OH BOY, WE GET TO REPO THEIR HOME. AND THEN GET RID OF ALL THEIR VALUELESS POSSESSIONS. AND THEN WE CAN’T EVEN SELL IT FOR MARKET VALUE BECAUSE IT’S TRASHED.
Seriously. My aunt’s house ended up getting foreclosed on by Bank of America because my cousin couldn’t continue the payments on it after she died, and I’m pretty sure they still haven’t sold it (and they had to ask well above market value for it due to the amount owed on the mortgage). A house that doesn’t get sold is a house that is utterly worthless and not doing anything.
Logic itself says that without outside pressure on the bank, usury makes sense but extreme predatory lending doesn’t.
Of course, Spiny. Is Pravda, what Media Matters publishes. So good Party members must push where necessary, no?
Yes; it only made business sense when the government put the taxpayers on the hook to repay the bad loans. That was the “pull” of the bubble. The “push” was the threat to basically shut your bank down if you only loaned to people who could repay.
It was part money-laundering, part protection-racket, with lots of the cast-off cash being slung around to buy favors from willing pols.
Jeff, no-one, not me, not Morgenson & Rosner, not the FCIC, has ever claimed that the “government played no role.” The issue is, what caused the creation of a worldwide residential & commercial property bubble, followed by a worldwide financial crash when that bubble burst? Now, I get it, for conservatives it’s customary to cast blame for all sorts of societal ills on poor African-Americans & Hispanics. And when you can make the face of the whole thing a Gay Massachusetts Jew (who was a minority member of the House, and therefore powerless, from 1995 to 2007), well, that’s a conservative Trifecta (present company excluded, of course, as I know you’re a gay jew, yourself). For those of us interested in the real causes, however, those billions of dollars in crappy bonds, tranches and swaps–as opposed to one freakin’ “Policy Statement”–are pretty hard to ignore.
That is a whole lot of stupid for just one post, son.
Formal, Material, Efficient and Final. How is it you care about causes again?
“And when you can make the face of the whole thing a Gay Massachusetts Jew (who was a minority member of the House, and therefore powerless, from 1995 to 2007),”
butt effing the freddie/fannie buddy has it’s privileges
Is The Dweller Ysul telling us to hate the player and not the game?
“(who was a minority member of the House, and therefore powerless, from 1995 to 2007),”
yea get back to us with bwarney’s campaign contributions from that period
Actually, Spiny Clouseau, the RE quote was taken from an excerpt in HuffPo & the FCIC Summary has been released in PDF; the rest, all me, wit and exposition.
As soon as most of the banks lent the money, the mortgages were sucked into the bond-making machine, with the originating lenders being given more and more funds by investors to keep lending more, churning, churning. The banks were not risking anything, and not because of some government guarantee that y’all seem to think was universal. If that were the case–that these banks made loans because they had a government guarantee (and not because Wall Street was buying and securitizing mortgages like there was no tomorrow)–then why would the banks need bailing out? Wouldn’t they just being able go to government for their guarantees? Truly, y’all don’t know what your talking about. In addition to Jeff’s books above, & the FCIC Summary, try reading the The Big Short. It’s always the capitalists who kill capitalism & the poor who get f@*ked. Always.
Un.Fucking.Believable.
So this is when the capitalists lost their shorts and the poor who couldn’t afford houses still couldn’t afford houses, yes?
Never follow “I get it” with proof that you have no fucking idea what you’re talking about or who you’re actually talking to.
That advice is free.
As for the rest, if you really were interested in what really happened, you’d depend more on independent accountings like those from the NYT reporter than on efforts by the government to distance itself from the debacle they set in motion.
Incidentally, my wife would be surprised to learn that I’m gay. Even if I do dress very well.
See, Crawford, had our verious serious, truth-desirous leftist friend actually read the book instead of taking the bit Huffpo excised to drive its wittle narrative for the useful idiots they rely upon for hits, he’d know these things — how they work, why they worked, why business reacted like it did, etc.
That advice is free.
Nobody can accuse Jeff G. of casting pearls before swine!
Fixed.
Or maybe I misunderstood something.
Capitalism is self-annihilating? That idea sounds familiar, somehow.
But there doesn’t seem to be much profit in self-annihilation; I sense contradiction here. One or more of your premises is likely false.
Now that I’ve considered it for a while, it’s probably arguable that socialists have positively ruined socialism for everyone else.
I just meant that it was a good thing that the advice was free (and therefor not worth much) because it was likely to be wasted.
the poor come pre-f@*ked in Barack Obama’s America
it’s one of his innovations
semi-serious question.
What is it exactly that the poor have that is worth f@*king over?
It works like this, Ernst:
1. Bank gives home loan to poor person who will never pay it back with no down payment or income verification. Poor person defaults leaving bank holding property worth less than the loan.
2. ???
3 Profit!
The arbitrage of zero!
And for those loans that aren’t reinsured by Fannie and Freddie? What about those loans that were made by Credit Unions that were also made under the CFRA and all the other alphabet mix of community housing blackmail? Credit unions didn’t as a rule arbitrage their holdings to Wall Street and they are now swimming in a lot of red ink.
Lousy Dweller has some holes in his neatly wrapped package of doom.
Jeff, do you think it’s controversial that the government had a role in the financial crisis? That there’s anyone who denies the fault of government? That Huff Po’s widdle narrative, or the FCIC’s, consists in anything like the “government had no role”? Whether or not I’ve read RE (and who among us blog geeks doesn’t know what’s in the book), the fact remains–however you may want to allocate blame overall–there was no need for government to force bad loans on the lenders, what with Wall Street handing lenders cash hand over fist to make bad loans.
And Slarti, what do you call it when you kill the golden goose?
“Jeff, do you think it’s controversial that the government had a role in the financial crisis?”
progg cockus
If you have read the book and you’re taking the position you are, you’re dishonest; if you haven’t, we don’t have anything to talk about until you do. But I’ll just point you to many of the comments here and suggest that if you read them, the idiocy of your position will become readily apparent, assuming you don’t already know that but have decided to go with it anyway, because you’re a die hard partisan hack.
Please, people, not while I’m counting.
“my wife would be surprised to learn that I’m gay. Even if I do dress very well.”
As long as you don’t accessorize? Cus then we’re gonna have to reassess (ok, allowances for pearls with swine;).
“Now, I get it, for conservatives it’s customary to cast blame for all sorts of societal ills on poor African-Americans & Hispanics.”
Dweller, go back to the racist cesspool you come from.
You’re a typical leftist, viewing everything through the lens of skin color.
Skin color was not the problem with mortgages. Ability to pay was the problem. That problems with ability to pay fell disproportionately on minorities was the outcome of relaxed lending standards.
You’re beyond anything reasonable, dweller if that’s what you consider racist.
Oh, and you’re an ass, too, dweller.
Real simple, Pellegri: “Loan these Official Victims money, or we’ll have 500 bussed in homeless people led by community organizers like Barack Hussein Obama in your lobby tomorrow. Loan money to these Official Victims, or another mob will be outside your house and following your children to school with signs saying your child’s parent is a racist evil baby-eater. Loan money to these Official Victims or we’ll have a little chat with our fellow SEIU members down at Treasury and Commerce about how you shouldn’t be licensed to be a lender any more. Loan money to these Official Victims or we’ll have community organizers like Barack Hussein Obama filing lawsuits in every court we can think of.”
Far cheaper to hand over the cash, especially when the government takes away the risk.
Oh, and Dweller Ysul is just another in a long list of why we can’t live in the same society with dishonest Copperheads, and the faster we realize that the better.
okaaay then
Socialism. Millions of golden geese slain. But they were enemies of Teh People!
Oh, you can dismiss it as Marxism or Stalinism if you want, but it’s just different gradations of thuggery.
In socialism, there aren’t any golden geese. But there are a select few that get dachas, and don’t have to wait in line for sandpapery toilet tissue.
Gay MaybeJewish Seagull
Tuesday morning links…
SC Sheriff Urges Citizens To Arm Themselves Stone Age-style restaurant serves only food that was available to our caveman ancestors More on the movie Margin Call Shanghai Gets Supersized – Boasting 200 skyscrapers, China’s financial capital has grown…
When someone comes in and comments and every comment starts with “Jeff,”, invariably, their comments are driven more by their Goldstein-boner than any knowledge of the subject matter.
Yep.
Jeff, on my Android browser, the mobile version of the site gets a 404 error trying to sign in at the bottom of the comments, but switching to the full version of the site allowed sign in just fine.
You mean the crappy bonds, etc., that would have never been sold if the loans were never made if the benevolent government had not both lowered lending standards and forced lenders to make substandard loans to comply with it’s feel good social vision.
See also @46 for what happens in marxist utopia when a lender did not comply eagerly enough with the above. The root lies at at the point bad social policy was substituted for sound financial policy.
#40
You don’t work for the Washington Post by any chance, do you?
Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law.
Using this statistic to try dissociate the CRA from the housing bubble betrays a staggering ignorance of how banking regulators do their work.
The trolls who piss on our legs here have one characteristic that sets them apart from the run-of-the-mill: a level of pretentiousness I don’t see anywhere else.
OTOH, this:
…is such a run-of-the-mill strawman, it’s become clichéd.
Seriously, with all the “great minds” on the Left, couldn’t they come up with something new?
church,
It’s the same lie as when they claim that, because the GSEs only actually held a small fraction of the high-risk mortgages when the thing blew up, the GSEs had little or nothing to do with the housing bubble and crash, apparently ignorant of the fact that ALL of those loans had to meet Fannie and Freddie standards, whether or not they actually were bought by them – because they might be at some point in the future. As anyone in the business will tell you, the secondary market was and is controlled by the GSEs, and everyone involved must work by their rules. They own it.