Thursday, September 25, 2008

We Sacrificed Sound Credit Policies For Social Activism And Endangered Entire Mortgage Market

While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, some analysts are saying it wasn't too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices.

Stan J. Liebowitz, economics professor at the University of Texas at Dallas, in his forthcoming book, Housing America: Building out of a Crisis, puts forward an explanation that he admits is "not consistent with the nasty-subprime-lender hypothesis currently considered to be the cause of the mortgage meltdown."

In a nutshell, Liebowitz contends that the federal government over the last 20 years pushed the mortgage industry so hard to get minority homeownership up, that it undermined the country's financial foundation to achieve its goal.

"In an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s," Liebowitz writes. "The decline in mortgage underwriting standards was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, GSEs and housing activists."

"Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise. As homeownership rates increased there was self-congratulation all around. The community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership."

~From the WorldNetDaily article "Guess again who's to blame for U.S. mortgage meltdown? Analysts point not to greed, but to social activist politics"


At 9/25/2008 2:23 PM, Blogger OBloodyHell said...

Dr. Perry.

I'd like to see you write some responses to the stuff over on Maxed Out Mama's blog, since she generally disagrees with your position on this, or at least what you've been posting regarding it, which I assume is in sync.

I think this would be of value since she's a programmer in the Banking industry, and thus has a better handle on what happens underneath the surface, and what is going overall on than most, so I consider her opinions of worth.

She's always struck me as somewhat pessimistic, but never stupid or thoughtless.

I can't really contrast your positions with hers since you both probably understand a lot of what is happening better than I do -- hence, I'd like to see, if you can, some of your reasons for disagreeing with her own analyses on the whole mess.

Please consider a thread or two on why you think she's wrong. I think your readers would benefit on seeing the contrast.

At 9/25/2008 5:15 PM, Blogger juandos said...

The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis

About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles

At 9/25/2008 5:15 PM, Anonymous Anonymous said...

I read both blogs. I don't see disagreement. Show your work.


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