NCPA - National Center for Policy Analysis


September 25, 2008

While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, Stan Liebowitz, author of "Housing America: Building out of a Crisis," says it wasn't too little government intervention that cased the mortgage meltdown, but too much.

The form of government intervention that Liebowitz focuses on is minority homeownership.  In a nutshell, he 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.  Further, this social activism endangers the entire mortgage enterprise.

To support his idea, he tracked reports and articles back to the 1990s, when the United States experienced a sudden surge in homeownership among minorities:

  • An article in the Los Angeles Times from the late 1990s praised the surge, calling it "one of the hidden success stories of the Clinton era."
  • But researchers claim that the success came at a great price; the Federal Reserve Bank of Boston even produced a manual warning mortgage lenders to no longer deny urban and lower-income minority applicants on such "outdated" criteria as credit history, down payment or employment income.
  • Liebowitz' contention that lenders were under pressure to loosen their standards for racial and political goals is confirmed by the fact that Fannie and Freddie encouraged and praised lenders for adopting the slackened policies toward minority applicants.
  • A New York Times article from September 1999 states that Fannie had been under increasing pressure from the Clinton administration to expand mortgage loans among low- and moderate-income people and that the corporation loosened its lending requirements to comply.
  • The Washington Post reported that a higher percentage of African Americans with incomes of $65,000 to $75,000 had bad credit than white Americans with incomes of below $25,000.

Such data demonstrates that when federal regulators demand parity between racial groups in lending, the only way to achieve a quota would be to begin making intentionally bad lending decisions.  Furthermore, the risk is too high to sacrifice sound financial policy for social activism, concludes Liebowitz.

Source: Drew Zahn, "Guess again who's to blame for U.S. mortgage meltdown," WorldNetDaily, September 19, 2008; based upon: Stan Liebowitz, "Housing America: Building out of a Crisis," forthcoming.

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