http://www.wvwnews.net/story.php?id=5611
by http://www.wvwnews.net/story.php?id=1961
The Democrats are desperately trying to distance themselves from the subprime crisis. They’re claiming that it was “corporate greed” (not liberalism) that caused the mortgage industry meltdown. There’s just one little problem with their claim; it’s not true. The http://www.wvwnews.net/story.php?id=3002.
A New York Post article reports that “a ‘landmark’ 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic. That study was tremendously flawed – a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination. Yet the political agenda triumphed – with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion. No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the Fed, produced a manual for mortgage lenders stating that: ‘discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.’ Some of these ‘outdated’ criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt. Sound crazy? You bet… On the Web, you can still find loans via http://www.wvwnews.net/story.php?id=4986 with ‘100 percent financing . . . no credit scores . . . undocumented income . . . even if you don’t report it on your tax returns.’In reality, Blacks and Latinos were failing to qualify for home loans because their average income is lower, their average credit history is worse and their ability to make a down payment is worse than the average for White people. Unfortunately, liberals entrenched in powerful positions in our government chose to ignore all the evidence that ordinary Blacks and Latinos have certain inherent, persistent flaws that make them bad candidates for home loans.
Not only did the Feds demand that more loans be made to minorities, they insisted that traditional criteria like proof of employment and the ability to make a down payment should not be used to disqualify loan applicants. Lending to unqualified minorities was the first big reason for the subprime crisis. Eliminating down payments was the second big reason. The down payment is critically necessary in the mortgage industry. By forcing people to make a 20 percent down payment, the chances of the borrower “walking away” from a home loan (if the housing prices start to drop or the monthly payments increase) are greatly reduced.
A frequently-mentioned problem with these subprime loans was the tendency for some mortgage lenders to use extremely low “teaser rates” to draw in incredibly naive borrowers, who apparently had no understanding of how a variable rate loan works. It appears that a large number of minority loans fell into this category. In many cases, the borrowers appear to have had little clue that the interest rate and monthly payments would go up after the first year. It’s hard to imagine people so clueless that they would not know the consequences of taking a variable rate loan. Clearly these borrowers had to be the most dim-witted of the subprime crowd. Once again we’re dealing with people, who probably put nothing down on the house and who should never have gotten a home loan in the first place.
So what happened to mortgage lenders who didn’t want to make these high risk subprime loans with no down payments to minorities? A New York Post article reports “Banks that got poor reviews (for making home loans to minorities) were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department. Flexible lending programs expanded even though they had higher default rates than loans with traditional standards.”
During the first few years that these new subprime loans were made, disaster was avoided because the houses could be sold at a profit and the high failure rate was not costing the mortgage companies money. The potential for disaster however was huge and a few wise men in the financial industry warned of a looming subprime collapse. The quantity of subprime loans continued to grow, right up until 2006 when housing prices topped out and then started to fall.