Obsessive Housing Disorder
May 11, 2009, 02:35 PM
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Steve Malanga has a good qualitative history of the failures of the federal government to promote homeownership among marginal families from Herbert Hoover onward in Obsessive Housing Disorder in the Manhattan Institute's City Journal. An excerpt:
Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA �among the most egregious redliners.� 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. ...

Congress later took up where Clinton left off. Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit. To carry out this mission, Fannie Mae turned to old friends, like Angelo Mozilo of Countrywide, which became the biggest supplier of mortgages to low-income buyers for Fannie Mae to purchase.

Executives at these firms won hosannas. Harvard University’s Joint Center for Housing Studies invited Mozilo to give its prestigious 2003 Dunlop Lecture. Subject: â€?The American Dream of Homeownership: From Clich?© to Mission.â€? La Opini??n, a Spanish-language newspaper, dubbed Countrywide its Corporation of the Year. Meantime, in Congress, Waters praised the â€?outstanding leadershipâ€? of Fannie Mae chairman Franklin Raines.

It's not clear, however, which way the arrow of causality flows here. My best guess is that Mozilo figured out that there could be huge profits in "predatory securitizing" and browbeat Fannie and Freddie into letting him dump his crud loans on them so that they wouldn't lose marketshare and because Countrywide had played the race card so heavily over the years in building up its reputation as the "paragon" of diversity lending. (Countrywide sold all the mortgages they originated as fast as they could package them up.) So, Fannie and Freddie didn't invent the Bubble, but their massive entry into the buying up terrible loans in 2005 and 2006 from boiler room operators like Countrywide caused the disaster to reach its most lurid heights.

It now looks like we taxpayers are going to be subsidizing Fannie and Freddie for, roughly, ever.

By the way, why in this otherwise admirably comprehensive history is there no mention of George W. Bush's October 15, 2002 White House Conference on Increasing Minority Homeownership? Republicans and Democrats have sure worked together to drop that event, where Bush called for adding 5.5 million new minority homeowners by 2010 by getting rid of down payment requirements to drop that key even down the Memory Hole.