As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.
Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.
Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.
Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height vrom [sic] 2004 to 2006.
What is most notable about this news article is that it states clearly in the first sentence that this line of argument is coming from conservative quarters. No vague "some economic commenters" language; they put it right where it belongs, as a conservative red herring intended to undermine both attempts to regulate financial services and attempts to provide financial services on decent terms to lower income consumers and communities. Then the author does some analysis if the factual basis of the conservative claims and finds them grasping at straws.
Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.
It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.
This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.
To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.
But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.
Yes, there is a risk with low income borrowers. It's not like credit isn't extended to them now - it just done so under usurious terms and with a cynical hope to catch the borrowers in a cycle of debt peonage. This never gets mentioned in the conservative critique. They want to attach the act of low-income lending to a stigmatized class as a way of damaging the ability of liberal legislators and financial bureaucrats (yes, yes, precious few of any them, but they do exist) to proactively use government power to reduce barriers to wealth accumulation to previously excluded groups. They talk about individuals as credit risks, but quickly move over to condemning entire classes of people. Sadly for them, there is no conenction between their claims and the facts on the ground:
Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.
...[O]nly commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.
In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.
"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."
The reason I am pushing this issue is because the ability to cut off credit on reasonable terms to classes of people is part of the larger Movement Conservatives' war on the social safety net as such. The people most hurt by this are poor and working class women and their dependent children, regardless of color.
If you want to fight the creeping fascism of the Right, then you must undermine their attempt to wrap questions of power and socio-economic resources in mantles of class resentment and racial bigotry, not just wail that we'd better vote Obama or else.