Saturday, October 11, 2008

More Evidence on Fannie and Freddy

From McClatchy, one of the few new organizations left that doesn't just guzzle whatever kool-aide the Very Serious People hand them, a nice smack down of the Movement Conservative argument that its all those dark-skinned poor people who are responsible for the financial crisis because of their bad home loans:

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.

Anglachel

4 comments:

Dhyana said...

I normally agree with you, but I don't understand why you think that Fannie and Freddie did not give the banks the go ahead to write low quality loans. When the government puts out a sign that it will buy cars for $600 running or not, you can bet that the government will be buying worthless used-to-be-cars. In the same way, when the guidelines for Fannie and Freddie were dropped to buy junk mortgages, the banks did what was expected, issue mortgages to people who were on the edge, knowing that those mortgages could be unloaded into a willing buyer, Fannie and Freddie.

Susan petry said...

Let's not forget that owning your own home, no matter how limited your income, was one of the cornerstones of the Bush/Norquist "ownership society." somehow I don't think that the facts will make Limpballs stop bleating that it's all the Democrats' fault though.

Anglachel said...

Dhyana,

Um, because they didn't.

Did you read the McClatchy post in its entirety? Have you read the earlier post I did, linking to an extensive NYT article on Fannie Mae's problems, along with timelines of the problem? Have you read Tanta's response to Krugman about the role and power of the GSEs through this mess, from the inception of the bubble through the collapse?

Fannie Mae lost much of its market share of mortgages because companies like Countrywide bypassed FM to sell directly to the securities market. Also, I find it pointless to blame FM/FM for what was obviously a larger operation by the financial services industry to destroy rational lending practices. Wall Street wanted securities by the bushel, mortgage companies were churning them out as fast as they could and the privately held GSEs were getting cut out of that market.

Finally, you miss the point of my post. I'm am *not* arguing about the conduct of the GSEs. They have been suffering from bad management for the better part of a decade and need to be cleaned up. Period.

I am arguing about the explanation being pushed forward by the Right to explain *the entire financial crisis* as somehow the fault of those immoral, lazy, criminal, poor, black people ripping off us good, moral, upright, tax-paying white people.

This cannot be allowed to stand. This will be used to justify brutal and predatory lending practices towards entire classes of people. It will be used to distract attention away from the real causes of the meltdown, which is Phil Gramm's Enronomics.

Anglachel

Mike J. said...

The problem is that the facts of the matter are sufficiently complicated that most people will not take the trouble to study the issue at depth (and I am not necessarily an exception here). So the interpretation that will stick will be the one that will come from the biggest loudspeaker.

And, amazingly, once again it's the GOP that has the loudest loudspeaker. The Democrats once again can't seem to get their act together and put out a coherent message as to what happened and (equally importantly) what is to be done. Probably because that would hurt their standing with their corporate donors.

In the absence of a coherent Democratic policy agenda we are likely to be stuck with the Republican panacea solutions: another round of "middle class tax cuts" that somehow miraculously benefit only the wealthy. And, oh yeah, we'll privatize Social Security in the name of "retirement choice" in order to replace the wiped out 401-Ks, because it's the one big remaining pot of public money that has not been cannibalized yet.

I would not put it past Obama to implement both (particularly since he's bought into the "Social security crisis" rhetoric), in the name of the spirit of bipartisanship.