Alright, so I’m getting political, but I can’t help myself. I think that it’s important for my reader(s) to be educated. I also believe that this article is of interest to anyone who pays taxes – Republicans and Democrats alike. I will say that I’m hoping you read this with an open mind, as open as it can get. I’m not pointing fingers, I’m stating facts. Cold. Hard. Facts.
Today, the “bailout” bill was voted down 228-205 in the House. Regardless of the fingers being pointed and who is at fault for the “failure”, I know just one thing – I couldn’t be more excited about the “failure” of this bill.
Boys and girls, I’m going to take you back in time to the days of good ol’ Willie in the White House. Don’t stop reading, that’ll be the last snark you hear from me about him.
At least, it’ll be the last intentional snark. He really just makes it so easy.
Ok seriously, done.
Those of you who have ever worked in a bank or for a credit card issuer probably have some generally understanding of Regulation B or the Equal Opportunity Credit Act.
For the most part this regulation is about discrimination regarding religion, race, gender, blah, blah blah. But the sneaky little line in there that has cause so much chaos is:
The Equal Credit Opportunity Act [ECOA], 15 U.S.C. 1691 et seq. prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. (source)
Did you read that? Do you understand it? “….because an applicant receives income from a public assistance program…..” That means welfare. Or unemployment. Seems silly, right? Why can’ta bank refuse to issue a mortgage/loan/credit card to someone who’s sole or even partial income is that of welfare or unemployment? It’s not their money to begin with! But, enough yahoos in Washington thought it was a brilliant enough idea that it was passed.
Fast forward about 20-ish years. To the Clinton era. (That bill was initially passed in the 70’s) See, Regulation B’s portion about lending to people on welfare wasn’t exactly being followed by banks. Because it’s a stupid idea. But Clinton didn’t like that. He wanted these unqualified people to have loans and mortgages that they couldn’t afford. And so…..
Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.
Instead of looking at “outdated criteria,” such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named “Caylee.” (not my snark)
Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke — it’s a fact. (source)
Do you get it? Clinton and his cronies forced lenders to give mortgages to these under/un qualified people, or else. What’s worse, he wanted 50% of Fannie Mae and Freddie Mac’s entire portfolios made up of these unqualified buyers. Initially, the market wasn’t affected. It’s the whole “supply/demand” thing.
Making it possible for otherwise unqualified people to buy homes increased demand and increased the price of houses. As long as housing prices rose, the problems inherent in not requiring down payments or relaxing other standards were hidden. While prices rose, no one had to default. Instead, if someone was unable to pay the mortgage, the obvious option was to sell the house at a profit. As long as prices continued to rise, people could accurately claim that the new standards did not have an appreciably different default rate than the old standards. (source)
This is basically saying that, as long as the housing market was hot! hot! hot! this lowering of the standards relating to lending money wasn’t an issue. People could just sell the houses they couldn’t afford (for profit!) rather than defaulting on their mortgage. The problem is, that market never lasts forever. Real Estate is cyclical like that. Sometimes it’s a buyers market, other times, it’s a sellers market. Sometimes the market is crappy for both, like it is now. Otherwise known as “the bubble has burst”.
So now, the houses can’t be sold at all, much less for profit, and now these people who shouldn’t have been allowed mortgages in the first place have defaulted, and banks have had to foreclose, which has caused our current predicament. Because it’s not just one or 2 people who have defaulted. It’s many.
This situation, try as you might, cannot be blamed on President Bush. It’s not his fault at all. He is not responsible for the Equal Opportunity Credit Act and he is certainly not responsible for it’s specific enforcement in the Clinton Era.
Shift your blame elsewhere – To the man who enforced it and then got out of office unscathed, and is now watching the rest of us writhe and wriggle uncomfortably, as we live from paycheck to paycheck from the comfort of his, no doubt, multi-million dollar home.