Investor’s Business Daily shines the light on the roots of the subprime fiasco:
“But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”
Doug Ross goes into some detail about one Clintonista featured in the IBD editorial, Ms. Jaime Gorelick. In his piece Jaime Gorelick, Mistress of Disaster he says
It’s not often that one person plays key roles in two—count ‘em, two—trillion-dollar disasters. Welcome, my friends, to the world of well-connected Democrat Jamie Gorelick.
But there’s even more than what Ross points out.
In 1999 Fannie Mae announced that it would purchase $10B in CRA loans. In 2001 they reached that target as Ms. Gorelick announced that they would roll these into special security issues.
“Our approach to our lenders is `CRA Your Way’,” Gorelick said. “Fannie Mae will buy CRA loans from lenders’ portfolios; we’ll package them into securities; we’ll purchase CRA mortgages at the point of origination; and we’ll create customized CRA-targeted securities. This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending. Lenders now have the flexibility to use their own, customized loan products,” Gorelick said.
Shortly thereafter a great deal of similar securities were created and sold by many of the companies now hurting so badly. “If Fannie Mae is doing this sort of thing why shouldn’t we?” seemed to be the mindset? Furthermore, these sorts of securities issues are almost completely unregulated and attempts to look into the soundness of the product was hampered by Fannie Mae lobbying efforts.
And they would use the proceeds to buy even more CRA loans:
Through its American Dream Commitment, Fannie Mae has pledged to transact before the end of this decade more than $20 billion in specially-targeted CRA business and to finance over $500 billion in CRA business altogether. Over the decade, an estimated one third of loans financed by Fannie Mae will meet Fannie Mae’s CRA business goal.
In 2004 Office of Federal Housing Enterprise Oversight released a report that said:
the findings contained in OFHEO’s 211-page report “cannot be explained as mere differences in interpretation of accounting principles, but clear instances in which management sought to misapply and ignore accounting principles” to meet investment analyst expectations and reduce volatility in reported earnings among other purposes.
“We must consider the accountability of management to fully implement corrective measures and bring about broad cultural and operational changes in the areas of concern,” Falcon said. OFHEO’s report makes “it difficult to assert such confidence.”
Yet Congress failed to act. Fannie Mae was allowed to hire it’s own investigators from the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, LLP, to investigate itself. Two years after the OFHEO letter the report was released by Fannie Mae and eventually a Federal Probe was ended.
Let’s be clear. The risky financial instruments that are now the major source of such pain and misery were pushed hardest by a former Clintonista trying not only further a Liberal social engineering plan but to enrich her own self in the process. America…what a country!
(h/t Insty for the Ross post