Who Caused the Subprime Mortgage Mess?

A tip of our hat to the Volokh Conspiracy for alerting us to a new study demonstrating again that the culprit in the housing fiscal Ka-boom! of 2008 was the Community Redevelopment Act that the Clinton administration used as a coercive tool with which to pressure banks to make unsound “subprime” loans to prospective home owners who were simply not sufficiently creditworthy to become home buyers. See Paul Sperry, New Study Finds CRA ‘Clearly’ Did Lead to Risky Lending, News.investors.com — click here

“Housing analysts say the CRA is the central thread running through the subprime  scandal — from banks and subprime lenders to Fannie and Freddie to even Wall  Street firms that took most of the heat for the crisis.”

This may be very interesting, but it isn’t news. We offer the following 1999 quote from  the New York Times:

“Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.” . . . “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1990s.” Steven A. Holmes, Fannie Mae Eases Credit To Aid Mortgage Lending, N.Y. Times, Sep. 30, 1999. Emphasis added.

And if you would like another such dispatch, try Gretchen Morgenson, Housing Bust: It Won’t Be Pretty, N.Y. Times, July 25, 2004, Sec. 3, at p. 1.


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