“Under Clinton’s HUD secretary Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in “credit-deprived” areas.”
So how come the genius GW Bush didn’t change this? Wasn’t he President after Clinton?
” Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting. “
This isn’t accurate. CRA required banks to make some loans, and they didn’t have to be mortgages, in the areas where they were taking in deposits. This applied only to retail banks and not all lenders. Again Bush could have changed this policy and didn’t.There was no requirement for banks under the CRA to ignore conforming loan standards. They were pressured to do so by the market because non-CRA lenders were rolling out high yield non-conforming mortgages and that’s what investors wanted to buy.
“These new HUD rules lowered down payments from the traditional 20% to 3% by 1995 and zero down payments by 2000.”
GW Bush passed the American Dream Downpayment Initiative, which gave “free” downpayments to select minorities.
“Fannie and Freddie made a common practice to virtually end credit documentation, low credit scores were disregarded, and income and job history was also thrown aside”
That’s not true at all. F&F continued to write conforming paper all through the bubble. Their private sector competition wrote NINJA, Option ARM, No Down high yield mortgages. The high yield/high risk sector grew enormously and was crowding out F&F’s stodgy low yield conforming paper.
“Fannie and Freddie were securitizing these home loans and offering 100 percent taxpayer guarantees of repayment.”
There was no obligation for the American taxpayer to guarantee F&F’s paper. They were listed stocks on the New York Exchange owned by investors. The Bush administration decided to stick the taxpayer with bailing out these investors. There was no legal obligation. Why, you’ll have to decide for yourself. To save the banking system was the surface excuse.
Not a dime’s worth of difference between the Bushes and the Clintons.