Goal: Increase Minority Homeowners by 5.5 Million in a Decade
Guess who's goal this was? You might be surprised:
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"More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a home ownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future. We've got to work to knock down the barriers that have created a home ownership gap.
I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families . . .
Home ownership is also an important part of our economic vitality. If -- when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity -- the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that's important because it will help people find work."- George W. Bush, U.S. President, October 15, 2002 1:55 P.M.
(video after the jump)
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Last week, we mentioned this speech from 2004. Fast forward to today's excerpt, from an even earlier, 2002 speech.
Why keep bringing these up? Because it derails the false argument brewing amongst those on the right who blame the 1977 CRA or the 1938 Fannie Mae for the current housing and credit problem. I have zero patience for this nonsense, and am unafraid to call people on it.
Nothing in any of these Bush speeches that pushed for more lending to minorities and increased lower income home ownership caused the problem. Neither did any similar Clinton speeches. Nor did related the legislation related to the Bush speeches, nor did the CRA, nor Fannie Mae or Freddie Mac. Indeed, none of these actions required the sort of reckless lending that we saw from 2002-2007.
Understand this simple fact: In an ultra-low rate environment, where prices are appreciating rapidily, and mortgaes are being securitized, ALL THAT MATTERS IS THAT THE BORROWER NOT DEFAULT IN 90 days (or 6 Months). The goal was to make a loan that did not default in that period of time, it cannot be put back to the originator.
As a mortgage salesman, you only lose your a fee if a borrower defaults within 3 or 6 months. What do you do to maximize your returns? The best way to do that -- to put people in houses that would not default in 90 days -- was the 2/28 ARM mortgages. Cheap teaser rates for 24 months, then the big reset. By then, it was no longer your problem.
Can you grasp what a monumental change this was? Instead of making sure that borrowers could pay back ALL OF THE 30 YEAR FIXED MORTGAGE, you only had to find people who could afford the teaser rate for a a few months. THIS WAS AN ENORMOUS AND UNPRECEDENTED SHIFT IN LENDING.
This is the key to the hosuing boom and bust, anbd ultimately underlies the entire credit freeze. And, it would not have been possible without the Greenspan ultra-low rates, which made the teaser portion (the "2" of the 2/28) of these mortgages so attractive.
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Those who continue to blame the CRA, Fannie Mae, etc. reveal their fundamental misunderstanding of how credit operates in general, what the financing process was like from 2002-07, and how this situation came to pass. Or worse, they understand it, and choose to lie about it anyway for partisan political purposes.
You either understand these simple facts, or you don't. If you cannot comprehend this, well, then, I am at a loss as to what that says about your cognitive functioning. But if you understand this, but spit out the nonsense anyway, then you are merely a partisan with no respect for the truth.
And that seems to be the main people blaming the CRA and Fannie/Freddie for the credit/housing crisis -- those folks who either can't think -- or wont.
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Source:
President Hosts Conference on Minority Homeownership
October 15, 2002 1:55 P.M. EDT
http://www.whitehouse.gov/news/releases/2002/10/20021015-7.html
Tuesday, October 14, 2008 | 10:00 AM | Permalink
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Comments
nice rant BR lovin it!!
Posted by: harold hecuba | Oct 14, 2008 10:05:37 AM
I remember when the statistic of 66% home ownership was published and also that it was the highest on record . . . I thought, "Who else is left to buy?" Put my home up for sale and sold it in a weekend for cash. Been renting ever since.
Posted by: C Kincaid | Oct 14, 2008 10:06:12 AM
BR, I can't find any place in the economy for the next bubble, can you? They are stuffing money into a system that is already saturated. After 15 years of relative cheap money what's next?
Posted by: Concerned Citizen | Oct 14, 2008 10:09:45 AM
Higher education.
Posted by: Mrs. Davis | Oct 14, 2008 10:11:49 AM
As many bloggers are often promoting an agenda, I'm not sure if any dissenting opinions are allowed. But if your goal is to place the blame fully on President Bush, you make the same mistake of the right wing bloggers that you mention in your post- you're not telling the whole story.
I can show you videos of similar commentary urging promotion of bad loans and weak lending standards that were made by current and former members of congress on both the right and the left- even our dear friend Mr. Greenspan was a proponent of these measures.
Your blog has always been helpful in examining economic and market issues and as the political agenda creeps into the content, it becomes less helpful because it makes your readers begin to question your lack of diligence in other areas. Meaning no disrespect, just an analysis- but if you're trying to shape political opinions rather than offer financial insight, you would do well to also explain away some of Nancy Pelosi's and Barney Frank's comments to make your view at least somewhat believeable.
Posted by: Shane Merritt | Oct 14, 2008 10:15:19 AM
BR: Right on with what caused the gap tween credit and collateral. Lower interest rates are de facto lower end prices.
But don't forget another huge factor in this whole play...when the barriers of ownership between banks, real estate, and insurance were deregulated away we grew companies that were the seed of the over leverage and the too big too fail institutions that caused us all to become owners of bad banks and toxic paper sludge.
Posted by: BS | Oct 14, 2008 10:15:59 AM
Well, sorry you think this is an invalid point, but Bush just joined the left-leaning band wagon, so in that sense he is certainly a contributor to the problem. Just like the repubs joined into the "let's reduce the CIA, let's reduce the military, let's not ever reform Social Security, let's give mo gubmint health care entitlement via presc. drug benefits..." So, yes, if you are saying Bush bears some responsibility, you're right. The problem is that when the libertarians say: "let's not do anything" (or the repubs), they get hit with the: "brutal, uncaring, etc.". Until we get somebody who'll hold the line, the fraction of the GDP that is gubmint spending will continue it's unending climb. Was/is a guiding principle of the libertarian wing of the repub party? No way. The last time you might (might!) be able to make the argument that this philosophy got implemented was under Reagan. Since then, it doesn't matter who is in office: gubmint intervention has risen. Now, the GSE + lack of regulation (regulation does NOT equal direct participation of gubmint as a business) gave us what we have now (credit market meltdown/bailout).
Posted by: yernamehear | Oct 14, 2008 10:16:29 AM
concerned citizen, a four letter word for you: GOLD
Posted by: karen | Oct 14, 2008 10:18:05 AM
If Obama gets elected I look for a renewable energy boom. Lots of little players that could have a run with a little govt money and a few tax incentives. Not all bad, mayge a step in the right direction.
Posted by: catman | Oct 14, 2008 10:18:15 AM
thank you and amen
Posted by: Bob A | Oct 14, 2008 10:19:56 AM
I know I'm a relative new comer to posting here, but for the traders that hang out here:
My gut is all over buying this dip. What say ye folks? Do you think yesterday was a "one-dayer"?
The pullback to the intraday minute MA's seems perfectly relevant to how we've been trading of late. Its only natural for longs to want to take a profit after so much bludgeoning. I'm staying pat, fully long, and betting that this rebound last's awhile, at least to a retest of the dominant downtrend. I have that at approximately 115-120 on SPY, or 50 day EMA.
Posted by: I-Man | Oct 14, 2008 10:20:37 AM
thank you and amen
Posted by: Bob A | Oct 14, 2008 10:21:23 AM
I agree with everything you say regarding all the other things that contributed to this debacle: Greenspan, CFMA, bankers, borrowers, regulators, etc. Where you lose me Barry is where you claim that CRA was not a contributing factor. It was.
I guess that's the reason the whole situation is so acute. If it was just one problem -- low teaser rates for instance -- the Fed could just ease rates to the point that the 28 in the 2/28 would remain low.
But the problem isn't just that the rates were too low. Politicians decided that society would be better with higher levels of homeownership. Risk managers across the globe (Basel accords) thought their mathematical models perfectly controlled risk. That controlled risk allowed bankers to use ridiculous levels of leverage. Homeowners thought their houses were ATMs. Etc., etc.
CRA, which typified the thinking in on both sides of the aisle in Washington, was a contributing factor. Maybe not the most significant factor. But to say that it had nothing to do with the problem is as wrong as what you accuse your pal Charlie of doing.
Posted by: Don | Oct 14, 2008 10:22:23 AM
BR,
I think you may underestimate the *trade up* element of the housing market.
If some tax incentive or subsidy is directed at say the middle-upper end of the market, perhaps the 750k-1mill range, it will have the distortionary effect of inflating the prices of $1mill+ homes. BUT it won't affect cheaper homes.
By inflating the bottom of the barrel, government, via the trade-up phenomena, distorted the entire housing market and aggravated the frenzy.
Posted by: CaptiousNut | Oct 14, 2008 10:24:45 AM
the hysterical sound of a dying progressive
the only idiotic/moronic thing to believe is that FNMA/CRA had *nothing* to do with the crisis. however this is not what you are claiming, so you can cleverly state that strawmen who say it's the *only* thing are idiots.
but this is not what most people on the other side of the argument believe. they believe that there was *some* influence on prices by these factors (and other market manipulative incentives, like the mortgage deduction). how much is difficult to determine. but you cannot state with any certainty that they had nothing to do with it.
Posted by: pachuco | Oct 14, 2008 10:24:58 AM
speaking of buying 'dips', BR's call on Friday, DJIA~7500 IIRC, was Insane(-ly) spot-on.
Way to put it on the Record BR.
btw, is Kotok a skilled/avid Fisherman?
Posted by: Mark E Hoffer | Oct 14, 2008 10:27:00 AM
BR lamented: "You either understand these simple facts, or you don't. If you cannot comprehend this, you are a low functioning moron. If you understand it, but spit out nonsense anyway, you are a liar."
You forgot the obvious third option: Anyone who can't distinguish economic facts from economic fairy tales or fantasies is a modern day supply side Republican. They are both stupid and liars, but see the need for this behavior because it advances their agenda. The people who believe their blather are the sames ones who would vote for a barbie doll or a cocker spaniel or a rusty spoon if it were the anointed candidate of the moment. Part of being a good Republican, by today's standards, is to believe anything you are told and pass it along (re Kudlow).
Posted by: dead hobo | Oct 14, 2008 10:27:15 AM
As harsh as this rant sounds, it is the truth. I have always done my best to express my "left" leaning economic/financial opinions as just that, opinions; and respected those who disagree. I don't think it is any longer intellectually fair to respect the economic/financial opinions of staunch conservatives. They are wrong. They have been proven wrong. They have dragged those of us who were right down with them. This is no longer a matter of opinion. Markets have to be properly regulated, the labor force has to be given their fair share with wages and benefits, and the tax system has to be adjusted reasonably to account for the incredible income gap that's developed. Anything else will simply not be sustainable for the long haul.
Posted by: Dustin | Oct 14, 2008 10:28:05 AM
I agree CRA wasn't the problem, but I am still puzzled why you don't hold FNMA/FHLMC feet to the fire? CRA and FNMA/FHLMC are not the same. CRA is closer to FHA, if anything.
FNMA/FHLMC did, in fact, lower lending standards. I was there. Automated underwriting, etc. It wasn't for saintly reasons to meet minority homeownership goals, it was to get more business, spurred on by Countrywide and other lenders.
A self-employed businessman making hundreds of thousands a year could get a zero down loan on his credit score alone. You didn't have to be poor and black to benefit from FNMA/FHLMC loosened standards.
Posted by: cloudy | Oct 14, 2008 10:31:35 AM
Nice try. But the reality is that Bill Clinton re-wrote the CRA and created this mess while the Democrats in Congress received huge political contributions, particularly Chris Dodd and Barney Frank. What are you smoking? Where are the calls are investigations now?
Posted by: Tom | Oct 14, 2008 10:33:07 AM
Sheesh! What a party pooper. I'm a Republican with a tenuous hold on the suburban middle class lifestyle who's been blaming everything on minorities for years now. I know I've used it promiscuously in the past, but I really need this one. If I can't convince all my neighbors that minorities and Clinton are to blame, how am I supposed to get them to begrudgingly go along with all of this government intervention to backstop my home value?
Posted by: Chris D. | Oct 14, 2008 10:37:50 AM
BR,
If it helps underscore your point, here's a tool that you can use to find the probability that someone with a given FICO credit score will be 90 or more days delinquent on making their loan payments (of any type, not just mortgages.)
The chart included with the tool shows how the FICO scores needed to obtain a conventional mortgage that were progressively lowered by Fannie Mae and Freddie Mac sharply increased the probability of delinquent payments.
Posted by: Ironman | Oct 14, 2008 10:38:07 AM
thank you, BR, for your efforts in pushing back on this meme. Liars or idiots, that's what they are.
Posted by: larrybob | Oct 14, 2008 10:39:35 AM
good grief - who strengthened CRA? Clinton and Reno...
Posted by: Rob G | Oct 14, 2008 10:40:13 AM
Who were the loan originators turning the loan over to and why?
Posted by: Robert | Oct 14, 2008 10:40:41 AM
