Ken’s Take: It continues to amaze me how Congress and past Presidents are able to deny their part of the blame for the mortgage crisis …
Excerpted from IBD, “What Happened To Business Prudence?”, Bradley, February 06, 2009
For decades, government has intervened in the mortgage market, in the name of the “public interest.” There was the creation of Fannie Mae and Freddie Mac, the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977, the Financial Institutions Reform Recovery and Enforcement Act of 1989 and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.
There was the demand in 2000 by HUD that Fannie Mae dedicate 50% of its business to low- and moderate-income families. And there was President Bush pushing homeownership for all as the way to prosperity.
In 2000, for example, the Fannie Mae Foundation identified the “Outstanding Accomplishment” of Countrywide Financial Corp. as making almost one-sixth of its mortgages to blacks, Hispanics and Native Americans.
And Countrywide was hardly alone in the assault on invisible-hand decision-making. A decade ago, a senior managing director at Bear Stearns said this about mortgages made pursuant to the Community Reinvestment Act:
“While credit scores can be an analytical tool with conforming loans, their effectiveness is limited with CRA loans. Unfortunately, CRA loans do not fit neatly into the standard credit score framework. We believe a broader array of credit analysis data is needed to get a clearer perspective of the situation.”
Certainly, the people formerly employed by Bears Stearns now have a clearer perspective on the value of those mortgages.
Government regulation and political correctness are at the root of recent organizational failures that, in turn, have resulted in massive taxpayer-financed bailouts. New government intervention is trying to address the problems created by prior intervention — and futilely, it appears.
Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=318815966519210
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February 14, 2009 at 9:03 pm |
Comment: In January 2007, Lereah said, ‘It appears we have established a bottom.’ Right. Now, I think people like Carlton Sheets are more to blame than Lereah is, encouraging everyone to flip houses time and again and create an artificially rising housing market. So what IS the NAR head supposed to say? ‘We think a house is really the worst investment you could make with your money…’? Plus, I expect Congress and Freddie Mac and easy lending did more than any book or comments by Lereah.
February 16, 2009 at 8:16 am |
For me, it’s just not the denial of its (government) culpability. It’s the refusal to admit that banks are losing money because they made bad investments and the economy must contract to a significant degree to fix itself.