Smoking-gun edict shows the Fed govt was behind the Housing meltdown (employment, Congress)

[Little-Acorn]

In case the hundreds of other documented examples of the Fed govt threatening lenders with lawsuits etc., and huge govt entities like Fannie Mawe and Freddie Mac setting up gigantinc programs to buy risky mortgage loans from those who made them, thus absolving the original lenders of the risk of making those loans...

Here's an official Policy Statement laying down the plans for dioing those things. Authored in 1994 by the Clinton administration and carried out rotely by the people who are trying hard now, to pretend that the resulting crash of the U.S. economy was someone else's fault.

The more time goes by, the more of these "smoking gun" documents emerge... and the more shrill and strident the leftists' denials become.

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Smoking-Gun Edict Shows Gov't Behind Housing Meltdown - Yahoo! Finance

Smoking-Gun Edict Shows Gov't Behind Housing Meltdown

Investor's Business Daily – Mon, Oct 31, 2011 4:38 PM EDT.

President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis. "You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But 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 rate, 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.

Bubble? Regulators Blew It

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 agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.
Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.


(Full text of the article can be read at the above URL)

[Little-Acorn]

These edicts tie in neatly with previous exposes such as:

"Saving Our Economy"

Coincidence? Probably not.

[Interlude]

That's not a smoking gun. It's not smoking. It's not even a gun.

The origination of subprime loans came primarily from non-bank lenders not covered by the [Community Reinvestment Act, a law pushing the two GSEs to purchase more loans in the secondary markets and thus expand access to housing loans to low-income neighborhoods];

The majority of the underwriting, at least for the first few years of the boom, were by these same non-bank lenders;

When the big banks began chasing subprime, it was due to the profit motive, not any mandate from the President (a Republican) or the Congress (Republican controlled) or the GSEs they oversaw;

Prior to 2005, nearly all of these sub-prime loans were bought by Wall Street—NOT Fannie & Freddie;

In fact, prior to 2005, the GSEs were not permitted to purchase non-conforming mortgages;

The change in FNM/FRE conforming mortgage purchases in 2005 was not due to any legislation or marching orders from the President (a Republican) or the the Congress (Republican controlled). It was the profit motive that led them to this action.

http://motherjones.com/mojo/2010/05/...e-mortgage-gse

[wutitiz]

good post little acorn. I had a similar thread on the topic although yours adds new information.
How "call them racist" helped create the housing collapse.

There's no doubt that Fannie CEO James Johnson and his congressional allies used the flawed 1992 Boston Fed study to expand risky lending that helped grow the bubble. It was done to inflate the bonuses of Fannie execs. Johnson made over $100 during his approx 7 years as Fannie CEO.

The housing bubble & collapse was a complex phenomenon with many inputs & moving parts, but no doubt that 'call them racist' was a factor that entered in.