Bill Clinton's drive to increase homeownership went way too far - BusinessWeek: "Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place."
------------
This item is from February. The blog author relies on and links to analysis by Prof. Joseph Mason of Drexel Univerisity who analyzes the Clinton Administration's National Homeownership Strategy. This policy got underway in 1994 or 1995 and was intended to increase the home ownership rate by making it possible for people to buy houses even though they could not come up with a down payment, did not have enough money to make normal interest-plus-principal payments, or otherwise couldn't afford to buy a house in the first place. Clinton gave numerous speeches throughout his administration boasting of the success of the program.
As I keep saying, I don't see how any one culprit can be identified here. But Clinton is skating on what amounted to the intentional creation of a world of bad debt, backed up by GSEs.
1 comment:
I don't buy this argument. The reason is that the changes to the Community Reinvestment Act by Clinton did not trigger failed subprime lending; quite the reverse. CRA loans, which unfortunately only accounted for 20 percent of the subprime market, have failed at a far lower rate than subprime loans in general, largely because they're more closely supervised. Also, if the Clinton expansion of CRA was to blame, we'd have seen a spike in foreclosure far earlier than we did.
Instead, I'd look at Phil Gramm's backdoor deregulation of credit default swaps in the dying hours of 2000's lame duck session. This paved the way for mass securitization of mortgages, boosting the credit default swap market from $600 billion in 2001 to $62 trillion by the end of 2007. Banks suddenly thought they had risk off their books, and engaged in MUCH riskier lending -- except in those rare cases where they're covered by CRA and had to abide by some rules.
Post a Comment