Did Bill Clinton's drive against mortgage loan discrimination partially set the stage for the housing crisis?

[AndrewR]

I saw an article in a local paper here (in Dayton, OH), and the author accuses Pres. Clinton of partially setting the stage for the housing crisis by essentially forcing banks and lenders to provide mortgages to lower income areas, typically minority areas, based on the perceived existence of mortgage discrimination.

Here's a quote from the article, which is itself quoting an article in the LA Times from Dec 9, 1993:

WASHINGTON -- The Clinton Administration, hoping to generate billions of dollars in new loans for small businesses and residents in poor and minority neighborhoods, on Wednesday unveiled proposed new rules requiring banks and thrifts to aggressively seek new customers in all parts of their communities. Federal regulators will now be much tougher in demanding that financial institutions make crdit available to the poor as well as the affluent, said Comptroller of the Currency Eugene A. Ludwig...

Now, on its face, this strikes me as a Republican attack against the Clinton legacy, but on the other hand, if the federal government pushed lenders into deals with lower income folks, perhaps there's a kernel of truth. In Baltimore, there are many, many foreclosures in lower income sections of the city, causing the current mayor to accuse lenders of targeting racial minorities (and ignoring the fact that inner city Baltimore is predominantly black and poor, and poorer folks with lower incomes are more likely to default on loans).

The article continues into greater depth about other things the government did to encourage the housing crisis (artificially low interest rates, tax breaks for interest payments on loans) and references as a cause but does not really discuss the bundling of subprime mortgages with prime mortgages into CDOs (which is not a gov't activity). So, the article isn't an attack piece on Clinton, is what I'm getting at -- the gist is that government intervention into the free market caused the mess.

Anyway, I haven't seen anything about this initiative on Clinton's part in reference to the housing crisis. Any truth to it? I did some digging, but it's difficult to search for past issues involving Bill with Hillary running for President now. Curious about what others know on the subject.

 

[Thump553]

You are correct, it is a political attack. "Blame it on Bill" apparently is not dead yet.

Way back in the 1970s I worked for a lawfirm that primarily did foreclosures of FHA and VA guaranteed mortgages (incidentally we did far, far more FHA than VA foreclosures, because a VA foreclosure affected the vet's right to claim other VA benefits). The firm supervised these on a national basis, so I was exposed to literally thousands of them all across the country. I would estimate that a sizeable minority (maybe 20-40%) of the FHA cases involved situations where NO monthly mortgage payments were made at all, and the majority of FHA cases involved situations where three months or less was paid. Obviously, there was some real lax underwriting standards and practices in force then.

Incidentally the standards and practices were subsequently tightened up a good deal, mostly by the government threatening to throw lenders out of the program.

But we didn't have a crisis then. Why? Because these crapo, next to no money down, shady credit history borrower loans were not packaged into so-called AAA quality securities used as collateral on Wall Street bak then. They were now, and that is what is causing the failure of financial institutions like Bear Sterns..

We had a huge wakeup call as to how bad the federal government's regulation of Wall Street was in the Enron and Worldcom collapses. GWB took some action which looked promising-he put a real, no-nonsense regulator in charge of the SEC and legislation was passed making the multi-million dollar CEOs PERSONALLY liable for misstatements in disclosure documents they signed. (Unfortunately about a year later, GWB let the SEC regulator go and replaced him with the usual patsy).

Enron wasn't the cause of this crisis, but they have the same base cause-inadequate regulation of Wall Street. Blaming it on Bill is typical GOP nonsense.

 

[Whoozyerdaddy]

If there's one thing I've learned in my 35 years on this planet it's this...

If there's something horribly, horribly wrong in the world it's:
1. Clinton's fault
and/or
2. Bush's fault

 

[AndrewR]

So, in your estimation the housing/credit crisis is the blame of the CDO bundles? That's what it seemed like to me, other than the obvious of blaming people for signing onto mortgages they couldn't afford. The author I mentioned does lay some blame on the market for accepting those CDOs, and another author in the same paper (it's a small section on the mortgage crisis since Ohio has been so hard hit) talks more in-depth about the lenders' lack of incentive for ensuring repayment ability because of the immediate sales of bad loans into those CDOs. If there's no potential loss, and the stock rating agencies are giving them AAA ratings, why would a lender care about the ability of someone to repay?

[edit] Do you think the push for lending to the lower economic areas PLUS the CDOs exacerbated the problem we're seeing now? Just a thought.

 

[AndrewR]

Originally posted by: Whoozyerdaddy
If there's one thing I've learned in my 35 years on this planet it's this...

If there's something horribly, horribly wrong in the world it's:
1. Clinton's fault
and/or
2. Bush's fault

Ha! I like that.

But actually, the guy's article isn't so biased. Oh, forgot a question in my other post...

 

[Engineer]

So it's now Clinton's and Bush's fault as BushCo pushed Freddie and Fannie (both government owned corporations) into lowering 25 standards for mortgages in 2002-2003 so that more minorities could own homes. Clinton started the push and Bush finished. Always seems to be that way. Reagan started NAFTA, Bush I pushed alot of it through and Clinton finished it by singing it. It's ALL of their faults!

 

[Fern]

Originally posted by: AndrewR
Curious about what others know on the subject.

I have read numerous articles citing the push to extend homes loans to low-income and minority borrowers as a siginificant factor in this problem. Still, I suspect it's only one of several factors. If the forclosures were mostly with minority borrowers I think we'd hear complaints about that.

Clinton hasn't been in office in about 8 years. I doubt a lot of forclosures are from homes purchased back then. He was President from '93 to '01, those homes were purchased well before the excessive run up in value. They would also own equity in them.

Might be that some of those people refinanced and took out their equity etc. But that doesn't make their (intial) home purchase the problem. The refinancing would be the problem.

I've been waiting some articles/comments etc about how tougher lending standards will make it more difficult for low-income and minority home ownership. So far, nothing.

Fern

 

[fskimospy]

I think we already hit the nail on the head for the largest cause of this problem. Banks had little incentive to ensure that the loans could be paid back, because they immediately sold the loans to other investors in big packages. When lenders are not accounting for the risks of loaning someone money, you're going to get a lot of bad loans.

 

[shira]

Originally posted by: Thump553But we didn't have a crisis then. Why? Because these crapo, next to no money down, shady credit history borrower loans were not packaged into so-called AAA quality securities used as collateral on Wall Street bak then. They were now, and that is what is causing the failure of financial institutions like Bear Sterns.

This really isn't accurate. The ultimate reason we have a crisis now is that housing prices stopped increasing in late 2005. Increasing housing prices masked all sorts of shenanigans, including the lax standards and inappropriate loan instruments (such as adjustable-rate mortgages for people who obviously were not going to be able to afford their mortgage payements when the cheater-rate period ended) used when sub-prime loans were originated and the securitization of bundled mortgages.

If housing prices were still going up by 10 to 20% a year, people would be selling their houses, for big profits, to get out from under loans they couldn't repay. And Bear Sterns would be making a killing on their investments. A bubble solves all problems.

 

[Capt Caveman]

OP - you are really reaching and need a new hobby b/c you fail at this one.

 

[XMan]

At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

 

[Engineer]

Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

BINGO!!!! /thread

 

[Pabster]

Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

Now, now. That's why we have "Rebate Checks" :laugh:

 

[senseamp]

Clinton didn't force investors to buy up these mortgages like hotcakes. That is what fueled the housing bubble. It wasn't the government mandate, but investor demand for these products that fueled the lending spree. Investors thought, why keep money in the bank when you can lend it to a hobo to buy a million dollar house that is only going to keep going up in value?

 

[Engineer]

Originally posted by: Pabster

Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

Now, now. That's why we have "Rebate Checks" :laugh:

Hell, I wouldn't call "ALL" of them Rebate Checks....as a rebate means that you had to pay something in to begin with.

 

[smack Down]

Originally posted by: eskimospy
I think we already hit the nail on the head for the largest cause of this problem. Banks had little incentive to ensure that the loans could be paid back, because they immediately sold the loans to other investors in big packages. When lenders are not accounting for the risks of loaning someone money, you're going to get a lot of bad loans.

Agreed that is the root cause of the bubble and crash.

 

[AndrewR]

Originally posted by: Capt Caveman
OP - you are really reaching and need a new hobby b/c you fail at this one.

And you need to f-ing read, you miserable troll. Geez, it's people like you that make honest discourse almost an impossibility in P&N. STFU if you have nothing to contribute.

Thanks to everyone else. For once, an informative thread.

 

[AndrewR]

Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

Very true, and I agree. The other article in that paper, that I mentioned briefly above, essentially wants to give all the ignorant people a pass because 1) it's everyone's dream to own a home, 2) home buying is very complicated, 3) most people are clueless about financial transactions, and 4) the financial experts at the lenders did not educate the buyers like they should have (!!). I wanted to smack the woman who wrote it for being such an apologist for idiots.

Of course, not everyone falls into that category because there were numerous speculators, particularly in places like Vegas or Florida or California (I think?) who were trying to do flips and got caught with their mortgages around their ankles when the market fell. They knew exactly what they were doing.

What galls me are the people whose houses go into foreclosure, and they proceed to destroy the place because they're mad they cannot uphold their financial obligations. There's a place near us that's a nice house, and the price is rather low. We found out that it needed carpets, appliances, paint in every room, some walls replaced, and various other major work because the previous owners destroyed it on their way out. How juvenile. I can understand on a fiscal level why someone would strip out appliances and fixtures for resale, but the wanton destruction of property is just amazing.

 

[Engineer]

Originally posted by: AndrewR

Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.

Very true, and I agree. The other article in that paper, that I mentioned briefly above, essentially wants to give all the ignorant people a pass because 1) it's everyone's dream to own a home, 2) home buying is very complicated, 3) most people are clueless about financial transactions, and 4) the financial experts at the lenders did not educate the buyers like they should have (!!). I wanted to smack the woman who wrote it for being such an apologist for idiots.

Of course, not everyone falls into that category because there were numerous speculators, particularly in places like Vegas or Florida or California (I think?) who were trying to do flips and got caught with their mortgages around their ankles when the market fell. They knew exactly what they were doing.

What galls me are the people whose houses go into foreclosure, and they proceed to destroy the place because they're mad they cannot uphold their financial obligations. There's a place near us that's a nice house, and the price is rather low. We found out that it needed carpets, appliances, paint in every room, some walls replaced, and various other major work because the previous owners destroyed it on their way out. How juvenile. I can understand on a fiscal level why someone would strip out appliances and fixtures for resale, but the wanton destruction of property is just amazing.

We looked at a forclosed house a few months ago. Same thing. All appliances removed, vent cover removed, light switches removed, all light fixtures removed, basement flooded (on purpose I do not know). Turned a beautiful house into a dump. Was too much work, even for the reduced price, to make it worth while.

Also, my opinion that the baleouts aren't so much for the people losing their houses as it is for the the banks that have fucked up. Money chasing money....not the people.

 

[Capt Caveman]

Originally posted by: AndrewR

Originally posted by: Capt Caveman
OP - you are really reaching and need a new hobby b/c you fail at this one.

And you need to f-ing read, you miserable troll. Geez, it's people like you that make honest discourse almost an impossibility in P&N. STFU if you have nothing to contribute.

Thanks to everyone else. For once, an informative thread.

Actually meat, not a single post to this thread is about Clinton having any responsibility for the housing crisis. So, either you're very ignorant or only read what you want.

If anything, the posts are about the housing crisis which has nothing to do with what you're trying to troll about in your OP.

 

[bbdub333]

Originally posted by: Capt Caveman

Originally posted by: AndrewR

Originally posted by: Capt Caveman
OP - you are really reaching and need a new hobby b/c you fail at this one.

And you need to f-ing read, you miserable troll. Geez, it's people like you that make honest discourse almost an impossibility in P&N. STFU if you have nothing to contribute.

Thanks to everyone else. For once, an informative thread.

Actually meat, not a single post to this thread is about Clinton having any responsibility for the housing crisis. So, either you're very ignorant or only read what you want.

If anything, the posts are about the housing crisis which has nothing to do with what you're trying to troll about in your OP.

You fail at logic.

 

[ElFenix]

Originally posted by: Engineer
So it's now Clinton's and Bush's fault as BushCo pushed Freddie and Fannie (both government owned corporations) into lowering 25 standards for mortgages in 2002-2003 so that more minorities could own homes. Clinton started the push and Bush finished. Always seems to be that way. Reagan started NAFTA, Bush I pushed alot of it through and Clinton finished it by singing it. It's ALL of their faults!

i believe the proper term is 'clusterfvck'

 

[Atreus21]

My theory is that the Fed upping the interest rate over the past few years led to ARM holder's defaulting on their loans, which contributed greatly to the crisis.

 

[piasabird]

Whenever any sector of business or the stock market does not follow business principles base on sound economic policy, eventually, there will be a correction. Under the free market the correction needs to take place to weed out the worst of these financial institutions and replace them with sound economic institutions. In some cases this means a lot of people probably will lose their house. That is too bad. Just build more apartments.

If we just keep lowering the interest rate for home loans that is not going to help. It will make credit easier to get, and it will cause an even bigger problem later. If we do nothing or we change nothing the same problem will still exist.

 

[StageLeft]

Did part of this rule include giving $700k homes to people with no proof of income or employment status?