It’s Time to Uproot the Real Cause of the Mortgage Crisis

It’s Time to Uproot the Real Cause of the Mortgage Crisis

Posted By Hans A. von Spakovsky On December 20, 2008 @ 12:00 am In . Feature 01, Money, US News | 16 Comments

As banks, insurance companies, brokerage firms, automobile manufacturers, and God knows who else line up to try and feed at the public trough, the original source of the spreading financial and credit crisis, the mortgage industry, is still in deep trouble. Whether the initial bailout plan passed by Congress will help stem mortgage lenders’ financial problems in the short run is still an open question. But one thing is certain: Nothing in the original legislation or Treasury’s actions and infusion of funds since then have made the legal, regulatory, and enforcement changes required to prevent this problem from happening again in the long run — no matter how many tax dollars the Treasury Department pours into the problem.

Nothing in the mortgage bailout legislation called for Congress to fix the serious problems with the [1] Community Reinvestment Act (CRA) that empower ACORN-style pressure tactics against lenders. Nothing made the Federal Reserve change its lending instructions. Nothing urged the president to change the enforcement policies at the Justice Department and HUD that forced lenders to make risky loans to unqualified applicants.

At its most basic level, this crisis started because of the weakening of mortgage lending standards caused by the Federal Reserve and other federal agencies. Lenders also feared facing discrimination claims and enforcement actions by government law enforcement agencies and organizations such as [2] ACORN.

Consider a faulty study the Boston Fed conducted in the 1990s. It claimed that minority mortgage applicants were rejected at higher rates because of discrimination. Yet a detailed analysis by University of Texas economists Stan Liebowitz and Theodore Day showed that the Boston Fed study was so full of data transcription errors that it was “outrageously unreliable.” When those errors were eliminated, there was no discrimination. Some minority groups do have a higher rejection rate for mortgages on average, but because of weaker credit histories, not discrimination by lenders.

Undaunted, the Boston Fed issued a new manual that called traditional lending standards like creditworthiness and down payment requirements “outdated” and “discriminatory” because they supposedly prevented minorities from getting loans. Other federal agencies joined in. The FDIC still has a compliance manual that discourages banks from requiring an “excellent” credit rating or “adequate” longevity on the job because it may have a “disparate impact” on minority applicants. This despite the current crisis and the fact that in 2007 the Federal Reserve finally admitted in a report to Congress that credit scores are “predictive of credit risk for the populations as a whole and for all major demographic groups.”

Mortgage lenders were also pressured to adopt these weakened standards by the Community Reinvestment Act. If they couldn’t show enough lending in minority neighborhoods to bad credit risks, they could be accused of discrimination, their charter renewals or merger deals held up by third party “community” organizations like ACORN. These organizations used the CRA as an extortion racket to get money for themselves (so they could do things like “counsel” high-risk borrowers) and to get mortgage funds directed to borrowers who had no down payments, no steady employment, and terrible credit histories. And everyone in Congress and the executive branch are wringing their hands over how to keep these borrowers in mortgages they cannot afford, rather than getting them out and thereby stopping the hemorrhaging in the lending industry.

As Professor Liebowitz said in testimony before Congress this past summer, the government’s entire housing policy was based “on a false claim, or lie” that mortgage lenders were discriminating against minorities. This lie was also pushed by the liberal civil rights community and the Congressional Black Caucus — and it was repeated “over and over again. Eventually this lie began to poison the mortgage market, and now the entire economy is at risk.” The secondary market necessary for the securitization of all of these bad mortgages (by bundling and packaging them together) accepted the constant reassurances by the Fed, Fannie Mae, Freddie Mac, and other government agencies that these high-risk mortgages were perfectly safe.

So where does the bailout plan direct the Federal Reserve, the FDIC, and all the other federal agencies involved in banking and lending to change their compliance manuals and regulations to allow mortgage lenders to tighten their lending standards? Where does it tell them to go back to traditional methods of determining creditworthiness without putting their charters in jeopardy or being accused of discrimination? Where are the amendments to the CRA to prevent lenders from being blackmailed into making more of these bad loans? Where are the president’s directives to the Justice Department and HUD banning the use of “disparate impact” in their enforcement actions and ordering those agencies to consider individual creditworthiness and other traditional lending requirements when investigating discrimination claims? You haven’t seen any of these directives because they don’t exist — and they are just as unlikely to come from the new administration.

You don’t hear any plans by anyone in Congress, the Federal Reserve Board, or in other federal agencies to take any of these actions — because no government officials want to admit their role in the financial crisis or incur the wrath of the race hustlers. They don’t want to confront the Congressional Black Caucus or the NAACP or other liberal pressure groups that will do everything they can to oppose these changes.

In a hearing in February, Rep. Maxine Waters (D-Calif.) actually claimed that the only problem with the CRA was that it didn’t cover enough of the credit market. Now that the Treasury Department is essentially buying control of American banks, mortgage lenders, insurance companies, brokerage firms, and other industries as the crisis spreads, how long will it be before federal career bureaucrats start using the government’s new ownership interest to force those same institutions and industries to implement “new and improved” social policies in their lending, credit, brokerage, manufacturing, and insurance practices?

And who will continue to be the real victims of these policies, in addition to the American taxpayer who is funding the bailout or losing his job because of the economic distress of so many employers? It will be the borrowers, many of them minorities, who have been put into terrible financial straits by lending practices forced onto mortgage lenders by the government.

This overwhelming problem is not the result of too much “deregulation” of the financial industry. It is the result of coordinated government regulations and destructive racial preference enforcement policies that effectively pressured lenders to make billions of dollars of loans to individuals who lacked the financial means to repay them. With the regulatory structures that are the root and cause of this whole problem unchanged, the American taxpayer will almost certainly be called upon to bail the mortgage system out again, as well as all of the other sectors of our economy being hurt by the credit crunch it engendered.


Hell Freezes Over

Hell Freezes Over

By INVESTOR’S BUSINESS DAILY | Posted Friday, December 19, 2008 4:20 PM PT

Climate Change: Sin City gets hit with almost 4 inches of snow as the white stuff even dusts Malibu, Calif. We don’t know what computer model global warmongers are using. A slot machine with three ice cubes, perhaps?

Read More: Global Warming


What happens in Vegas, they say, stays in Vegas. But as more evidence of the decade-long cooling trend is shoveled off the Strip, we hope that doesn’t apply to the truth about global warming.

On Friday, the Las Vegas Sun reported that eight inches of snow had hit the Las Vegas Valley. The 3.6 inches that had already fallen as of late Wednesday near McCarran Airport added up to the most snow recorded for the area in December since they began keeping records 70 years ago.

The white powder even dusted Malibu as a winter storm hit parts of California.

We commented recently on an Associated Press story claiming that, rather than being “evidence of some kind of cooling trend,” such events “actually illustrate how fast the world is warming.” But not everybody is convinced.

“If the issues weren’t so serious and the ramifications so profound, I would have to laugh at it,” said David Deming, a geology professor at the University of Oklahoma.

“The mean global temperature, at least measured by satellite, is the same as it was in the year 1980. In the last couple of years, sea level has stopped rising, hurricane and cyclone activity in the Northern Hemisphere is at a 24-year low and sea ice globally is also the same as it was in 1980.”

Speaking of rising sea levels, is Al Gore smarter than a fourth-grader? James O’Brien, emeritus professor at Florida State University who studies climate variability and the oceans, thinks not. “When the Arctic Ocean ice melts, it never raises sea level because floating ice is floating ice, because it’s displacing water,” he points out.

“When the ice melts, sea level actually goes down. I call it a fourth-grade science experiment: Take a glass, put some ice in it, put water in it, mark level where water is. . . . After the ice melts, the sea level didn’t go up in your glass of water. It’s called the Archimedes principle.”

Global temperatures stopped rising after 1998 and have plummeted in the last two years by more than 0.5 degrees Celsius. The 2007-08 temperature drop was not predicted by global climate models. It was predictable by a decline in sunspot activity since 2000 and by a cyclical ocean-current phenomenon known as the Pacific Decadal Oscillation.

On CNN’s “Lou Dobbs Tonight” recently, Jay Lehr, a senior fellow and science director at the Heartland Institute, was asked by the host what he considered the dominant influence on Earth’s climate.

“Well, clearly, Lou, it is the sun,” Lehr answered, adding that “if we go back in really recorded human history; in the 13th century, we were probably seven degrees Fahrenheit warmer than we are now.”

Lehr considers global cooling to be the real threat, part of a natural pattern as we continue coming out of a period known as the Little Ice Age. “If we go back to the Revolutionary War, 300 years ago,” he said, “it was very, very cold. We’ve been warming out of that cold spell from the Revolutionary War period. And now we’re back into a cooling cycle.”

The Associated Press claims that the 10 warmest years on record have occurred since Bill Clinton’s second inaugural. But after it was discovered that NASA’s James Hansen, Gore’s chief scientific ally, had been fudging the numbers, the agency was forced to correct its data. The 10 warmest years turn out to be, in descending order: 1934, 1998, 1921, 2006, 1931, 1999, 1953, 1990, 1938 and 1939.

If there’s a trend there, we don’t see it. So is global warming man-made and an imminent danger? As the snow falls in Vegas, don’t bet on it.