Financial Rescue: Democrats created the mortgage crisis by forcing banks
to give loans to people who couldn't afford them. Now Obama and Biden
want bankruptcy judges to bail out the same deadbeat homeowners. And
once again, Barney Frank is helping.
It's been said that history is a lie agreed upon. Democrats are trying
to rewrite history by blaming the Bush administration for the current
crisis and claiming that the rescue bill is necessary to save the
economy from Republican mismanagement.
More blarney from Barney.
Last Thursday on Fox News, when Bill O'Reilly tried to suggest that both
parties might share the blame, House Finance Committee Chairman Frank,
in a not atypical meltdown, disowned any responsibility for his lack of
oversight over the last two years and his complicity before that.
Frank also claimed: "The fact is, it was 1994 that we passed a bill to
tell the Fed to stop the subprime lending. We tried to get them to do
it." In other words, those rascally Republicans did it all when they
took control of Congress that November.
The legislation he spoke of was the Homeowners Equity Protection Act. It
was supposed to empower the Federal Reserve to set the rules on
mortgages. Problem was, the Clinton administration had its own ideas of
what the rules should be.
The Community Reinvestment Act, first passed in 1977 under Jimmy Carter,
was intended to increase minority homeownership. It grew out of charges
that banks were "redlining" entire inner-city neighborhoods as bad
credit risks. Banks now were forced to perform outreach to these areas.
In the '70s and '80s, banks could show that they were trying to do that
by advertising in minority newspapers and having representatives sit on
the boards of local groups. In other words, they were rated on the
effort made and not on the results achieved. Creditworthiness still
mattered.
In 1995, as Howard Husock pointed out eight years ago in City Journal,
"the Clinton Treasury Department's 1995 regulations made getting a
satisfactory CRA rating much harder. The new regulations de-emphasized
subjective assessment measures in favor of strictly numerical ones. Bank
examiners would use federal home-loan data, broken down by neighborhood,
income group, and race, to rate banks on performance."
Creditworthiness and due diligence no longer mattered. As a 1999 New
York Times editorial observed: "Fannie Mae, the nation's biggest
underwriter of home mortgages, has been under increasing pressure from
the Bill Clinton administration to expand mortgage loans among low- and
moderate-income people and felt pressure to maintain its phenomenal
growth in profits."
On Frank's and Clinton's watch, the Community Reinvestment Act was
changed to force the issuance of bad loans. Banks would be rated on the
number of loans, not on their soundness. Fannie Mae and Freddie Mac were
then encouraged to buy them up. It was all about affordable housing,
even if the housing was unaffordable.
"From the perspective of many people, including me, this is another
thrift industry growing up around us," Peter Wallison, a resident fellow
at the American Enterprise Institute, said back in 1999. "If they fail,
the government will have to step in and bail them out the way it stepped
up and bailed out the thrift industry."
That prediction came true, but it didn't have to.
On Sept. 11, 2003, the Bush administration proposed to Congress a new
agency under the Treasury Department to assume supervision of Fannie and
Freddie. The new agency would have had the authority to set
capital-reserve requirements, veto new lines of business and determine
whether the two quasi-government lenders were adequately managing the
risk of their ballooning portfolios.
When former Treasury Secretary John Snow pleaded for Frank to support
Fannie and Freddie reform, Frank responded: "These two entities - Fannie
Mae and Freddie Mac - are not facing any kind of financial crisis. The
more people exaggerate these problems, the more pressure there is on
these companies, the less we will see in terms of affordable housing."
Democrats believe in affordable housing even if it's at the expense of
the vast majority who watch their credit, work hard and pay their
mortgages on time. But for the deadbeats, particularly Democratic
constituencies, they have ways to make affordable the housing you
couldn't afford. So first, they forced them into housing they couldn't
afford, and now they give them a financial mulligan.
In the vice presidential debate, Sen. Joe Biden said that "what we
should be doing now - and Barack Obama and I support it - we should be
allowing bankruptcy courts to be able to re-adjust not just the interest
rate you're paying on your mortgage to be able to stay in your home, but
be able to adjust the principal that you owe, the principal you owe."
To get this bill passed, Obama made a lot of phone calls - particularly
to members of the Congressional Black Caucus, including caucus chief
Rep. James Clyburn - assuring this would happen.
Those paying their mortgages on time don't get that break.
Rep. Elijah Cummings said Obama told him that, if elected president, he
would direct a Treasury Department official to work with homeowners in
foreclosure to restructure their loans. Cummings said Obama also told
him he'd seek changes in bankruptcy laws allowing judges to reduce what
borrowers owe on their home loans.
Section 110 of the rescue legislation has the Orwellian title of
"Assistance to Homeowners" - but only for the deadbeats.
It describes somebody called a "Federal property manager" who "holds,
owns or controls mortgages, mortgage-backed securities, and other assets
secured by residential real estate."
Section 110 speaks of "modifications" that this manager can make to
these mortgages including not only the reduction of interest rates but
the reduction of loan principal.
Not only is Uncle Sam now the world's largest landlord. He can also
arbitrarily set the value of property and the amount owed on it at will,
thus distorting the free market.
The vast majority of homeowners who pay their mortgages on time get the
shaft. They're the ones who'll take up the others' slack.
Why? And why is the Community Reinvestment Act still law?
Barney Frank's Bankrupt Ideas
By INVESTOR'S BUSINESS DAILY | Posted Monday, October 06, 2008 4:20 PM PT |
