Mr. Ritholtz Replies
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From the comments section of my recent post offering a reading list to bring Barry Ritholtz, blogger (The Big Picture) and author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, up to speed on how "Diversity was a major factor in the mortgage meltdown:"

Ritholtz said...My bad — I guess I am not clearly defining what I mean by "Data".

Allow me to present an example:

The Federal Reserve Board data shows that:

* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. These firms are not covered by the CRA

* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA.



amongst others

This is what I mean by data, from reputable sources, relating to the actual issue at hand.

My apologies for any prior confusion...

Dear Mr. Ritholtz:

We are discussing whether or not "Diversity was a major factor in the mortgage meltdown." I realize you wish to confine the debate to the narrowest possible technical question of institutions officially covered by the Community Reinvestment Act. As you will recall, however, my invitation to you to debate me here rejected such a contrived and unenlighteningly narrow limitation of the topic. I wrote on Monday morning:

I would certainly debate him on the topic "Diversity was a major factor in the mortgage meltdown."

The causes are much bigger than the Community Redevelopment Act. I've always argued that George W. Bush's drive to add 5.5 million minority homeowners, as enunciated at the October 15, 2002 White House Conference on Increasing Minority Homeownership, by abolishing down payment requirements and by allowing "low doc" mortages (a.k.a., liar loans) was more directly responsible. But they are obviously both part of the same overall Diversity mindset.

Moreover, you should realize by now from reading those nine articles (you have read them by this point, haven't you?), you are drawing a legalistic distinction that didn't have a real world difference. Nonbank mortgage lenders not officially covered by the CRA, such as Angelo Mozilo's Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be legislatively extended to them.

As Steve Malanga explained in the Spring 2009 City Journal:

"Pressuring nonbank lenders to make more loans to poor minorities didn’t stop … If it didn’t happen, Clinton officials warned, they’d seek to extend [Community Reinvestment Act] regulations to all mortgage makers. … To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown."

Both in order to maintain the favor of regulators, politicians, Fannie and Freddie, and the media, and because Mozilo appears to have been a true believer in the Diversity dogma and saw himself as sticking it to the old WASP finacial establishment by lending money to "underserved Americans" (as Connie Bruck's recent New Yorker article makes clear), Countrywide made pledges identical in form to the pledges made by CRA-covered institutions, such as Mozilo's $1 trillion (that's trillion with a T) promise on January 14, 2005. (See Countrywide's press release entitled Countrywide Expands Commitment to $1 Trillion in Home Loans to Minority and Lower-Income Borrowers.)

Once you've finished reading my nine articles, Mr. Ritholtz, so that you are up to speed enough to carry on a sophisticated discussion of "Diversity was a major factor in the mortgage meltdown," please come back. I look forward to carrying on a well-informed discussion.

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