Former Housing CEOs: Poor People Did Not Cause The Current Financial Crisis
Former Housing CEOs: Poor People Did Not Cause The Current Financial Crisis
Today, four former CEOs of Fannie Mae and Freddie Mac testified before the House Oversight Committee on how their companies’ actions may have “contributed to the ongoing crisis.” Blaming Fannie, Freddie, the Community Reinvestment Act (CRA), and low-income people is one of conservatives’ favorite talking points. In September, Rep. Michele Bachmann (R-MN) touted an article criticizing the CRA for pushing “Fannie and Freddie to aggressively lend to minority communities.”
But as the Wonk Room’s Pat Garofalo points out, at the beginning of today’s hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a conservative myth. Later in the hearing, Rep. Edolphus Towns (D-NY) asked the four CEOs whether poor people caused the current financial crisis. All said “no”:
Richard Syron, former Freddie CEO: “I would think that it wasn’t mostly trying to do things for poor people.”
Daniel Mudd, former Fannie CEO: “[W]hen the market goes down, it’s the folks who are the closest to the margin who — who get hurt first and longest every time.”
Leland Brendsel, former Freddie CEO: “I cannot recall ever being forced to make — or to purchase a mortgage loan that I didn’t feel, as a matter of policy at Freddie Mac, was a good mortgage loan, a sound mortgage loan, and an attractive mortgage loan for the homebuyer or the owner of an apartment building.”
Franklin Raines, former Fannie CEO: “I do not believe that poor people are the cause of the current financial crisis. … Most of the losses, as I read the record, have come on mortgages that were made to middle-class and upper-middle-class people, not to poor people.”
Watch it:
Congress passed the Community Reinvestment Act in 1977, requiring banks “to lend throughout the communities they serve.” In the 1990s, greater mortgage lending to lower-income households by CRA-coveed banks increased the homeownership rate for lower-income and minority families. As CAP scholar Tim Westrich has written, “The real culprits in the mortgage mess are non-bank mortgage companies — not covered by CRA — that originated the lion’s share of bad mortgages at the heart of the crisis. They made an estimated 50 percent of subprime loans in 2005.”
Numerous other scholars, including Nobel-winning economist Paul Krugman and Center for Economic and Policy Research co-director Dean Baker, have also explained that while Fannie and Freddie made many bad decisions, they weren’t primarily to blame for the financial crisis. At a hearing in September, former top government economic experts agreed that conservatives were pushing myths, rather than facts.
Transcript:
REP. TOWNS: Let me just begin by saying, since the crisis started — I just want to ask all of you — we have heard some people claim that poor people are to blame for this. That’s the problem, they’re saying.
And the way this argument goes, the federal government forced the banks to give mortgages when they shouldn’t have — this is what they say — to people who were not credit-worthy, then forced Fannie Mae and Freddie Mac to buy up those bad mortgages.
You are the experts here. Is that the main reason that Fannie Mae and Freddie Mac had to be taken over, because they made too much financing available to low-income homeowners? Is that the problem?
Let me just run right down the line.
Mr. Syron? [...]
SYRON: I would think that it wasn’t mostly trying to do things for poor people. I do think that we have to realize that we need a balanced housing program. And I personally am in favor of, in a progressive sort of way, good rental housing that people can have while they’re getting ready to become homeowners.
Thank you, sir.
TOWNS: Mr. Mudd?
MUDD: I would just observe, Congressman, that when the — when the market goes down, it’s the folks who are the closest to the margin who — who get hurt first and longest every time. And that’s what’s produced the great human tragedy of this, which is the crisis of foreclosures in a lot of the towns and cities across the — across the country. Fannie Mae’s business was to be able to provide lending all across — all across the spectrum of affordable housing. And as part of that, you had — you had individuals who are in those communities — and now — now, and during my time — companies doing everything it could to try to stem that wave of foreclosures and difficulty in those communities.
TOWNS: Mr. Brendsel?
BRENDSEL: As I testified, I was CEO of Freddie Mac for a very long, long period of time. I cannot recall ever being forced to make — or to purchase a mortgage loan that I didn’t feel, as a matter of policy at Freddie Mac, was a good mortgage loan, a sound mortgage loan, and an attractive mortgage loan for the homebuyer or the owner of an apartment building.
TOWNS: Mr. Raines?
RAINES: I do not believe that poor people are the cause of the current financial crisis, nor do I believe defaults on the loans that they might hold is the cause.
They have too — much too small a share of the market. Most of the losses, as I read the record, have come on mortgages that were made to middle-class and upper-middle-class people, not to poor people.
And I do not believe that Community Reinvestment loans are the cause of the concern. And, apparently, neither does the comptroller of the currency, nor the chairman of the Fed, each of whom have said that the Community Reinvestment Act requirements had no role in the current financial crisis.
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I find it interesting that the closer we get to Obama’s inauguration the more truth seems to be seeping out. Hopefully this is a trend that will continue.
December 9th, 2008 at 8:03 pmAt a hearing in September, former top government economic experts agreed that conservatives were pushing myths, rather than facts.
And the MSM have done NOTHING to separate fact from myth. Much like the last 8 years, and I don’t know how many more years before Bush the Stupid.
December 9th, 2008 at 8:21 pmUnder harsh questioning from committee members, Raines’s successor Daniel Mudd explained that it was difficult for the companies to meet their multiple obligations to earn profits for their shareholders and to promote affordable housing.
He also explained that Fannie was under pressure to compete with Wall Street banks that were also ramping up their purchases of such risky loans.
“We couldn’t afford to make the bet that the changes were not going to be permanent,” Mudd said.
The Republican-led deregulation turned investment firms into competitors in the mortgage market. Wall street deregulation allowed these investment firms to treat the mortgages AS investment vehicles for others. Fannie/Freddie thus risked losing business, which in turn would threaten lending for affordable housing, so they had to climb on board to some extent.
December 9th, 2008 at 8:22 pmANd the bottom line is that it was the GOP-enabled unregulated Wall Street investment firms that then did not ‘hold’ each mortgage as a single asset/liability contract, each with a specific value but instead bundled them into investment vehicles which were then promoted because their real value was in the commissions based on the sales.
Lossning the terms of the mortgages encouraged the buying of mortgages which meant more ‘investment vehicles’ to sell and make commissions on.
Add to that the speculation that then on stocks of the companies offering these ‘investment vehicles’ and that’s how they were ‘valued’ and it’s that ‘value’ that has been lost ( I’ll guess half (?) the Wall street ‘losses’ are actually just profits not realized. For the actual mortgage buyers though the losses are all too real.
I know no one can, but can someone PLEASE explain to me the GOP mindset? They decide that we need to round up all Mexicans and send em back where they came from. This causes them to lose the Hispanic vote by a HUGE margin. They now want to blame the middle class and poor for the housing crises (the largest voting block there is). And it doesn’t stop here. So, PLEASE explain to me . . . just who do they think is going to EVER vote for them?
December 9th, 2008 at 9:50 pmIt seems to me that wealthy people are the cause.
December 9th, 2008 at 10:10 pmApplied for my first home mortgage in 1998.
They offered more than double what I had deemed affordable.
I bought the cheapest house I could find, paid half what bank was willing to loan.
5 years ago I signed on for my 3rd home, and subsequent mortgage.
Again, I’m offered at least double what my personally calculated budget says I can afford, and again I spend less than they offer.
Hi, I’m not poor, and I did not cause the current financial crisis.
December 9th, 2008 at 10:57 pmOf course the poor didn’t cause this!
The poor didn’t control the faucets and spigots of money that flowed from the banks to the brokers when the fed slashed and burned the interest rates like it was the Amazon rain forests.
And I certainly don’t recall any special interest groups by the poor, for the poor helping cushion the Bush and Cheney nest egg retirement funds to help deregulate Wall St. to the point that a mortgage could be made to my pet rabbit.
December 10th, 2008 at 12:10 amYou’re forgetting the most important and sweeping rejection of the entire CRA-subprime myth, which came last week from Fed Governor Randall Kroszner, in a speech titled, “The Community Reinvestment Act and the Recent Mortgage Crisis.”
Kroszner’s speech cited a recent internal Fed study on the impact of the CRA, which Kroszner says definitively rejects the notion that the CRA had anything to do with the subprime crisis. As Kroszner put it:
The speech contains a lot of actual data on the CRA issue, which has so far been lacking in the public forum. Case closed.
December 10th, 2008 at 12:45 am.
Ummm…
… Since when do poor people decide how much capital to lend?
.
December 10th, 2008 at 1:39 amThese are the same type of people as slaveholders who blamed their slaves for being LAZY and SHIFTLESS…
December 10th, 2008 at 4:54 amCaptain Obvious to the rescue!
Poor people didn’t cause the crisis, rich bankers trying to get richer caused the crisis.
Jeez, why did I have to fly all the way from my home planet to point that one out?
December 10th, 2008 at 8:09 amI can’t tell you how many arguments I’ve got into about this with right wing acquaintances of mine.
Bottom line is they blame Freddie and Fannie for the meltdown, and, hold your breath, it was BILL CLINTON’S fault for easing loan rules.
The right wing has some serious problems with taking accountability for their actions.
December 10th, 2008 at 9:23 amWow this is BIG. It seems like everyone I talk to seems to think that putting minorities in houses during the Clinton years was the cause of the recession. While that right-wing talking point seems to make sense at first (which is why everyone is believing it) it doesn’t make sense once you investigate it more.
But since when do the conservatives let the facts get in the way of talking points?
December 10th, 2008 at 9:39 amFormer Housing CEOs: Poor People Did Not Cause The Current Financial Crisis
No shit, Sherlock.
December 10th, 2008 at 10:49 amDespite my dislike for the decisions to entice people into inflated housing , I’ve got to admit that I find some hope in that Fannie and Freddie seem to be applying some introspection.
December 10th, 2008 at 12:12 pmSure all these poor people had such clout to force these big institutions to go against their best interests. Can’t you see it now? All the pressure these poor wannabe home owners put on those poor helpless billionaire Fannie and Freddie CEO’s.
Oh God! The pressure these CEO’s must have endured. I imagine most of them are in re-hab. Say in Dubai or the Caribbean.
December 10th, 2008 at 9:09 pm