Bill Clinton's drive to increase homeownership went way too far
Please Review this Article, which is widely ridiculed by the left, as it accurately explains the true causes of the housing/financial crisis.The origins of the crisis go back to the 1990's, with new housing policies implemented over the period 1995-2000. The Left says there is no way something like that could have helped cause the Housing crisis that came to a head in 2007-8. But we can understand this is a crisis that had an accrued Asset Value in the Trillions, of Homes, their Mortgages, and the securities that were created to support them, so the banks could create additional mortgages, and the financial instruments which were created to back them, so they could be sold as assets on national-international capital markets. These assets were held by banks,both Traditional Savings and Loans, as well as Commercial Banking Institutions, and Investment Banking Institutions and by the investors who bought them, being backed by Fannie Mae and Freddie Mac.
We all know at the end of a small babbling brook lies a deep and massive Reservoir. This is exactly the analogous circumstance of the Housing Crisis. It takes a little while to fill the Lake with Water, so it goes, it also takes a little while to fill the coffers of Banks, and investment houses with loans and the offsetting Assets, which then collapse under the stress of a massive number of defaults.
Those defaults occurred in a time when banks were only allowed to value their assets to Market going rate value. This method was the only one available as the Sarbanes-Oxley Bill precluded all else, including the marking the value, or assessing the value to the performance of the overall asset pool. It is time to realize this assessment stated below is more, rather than less, of the problem that created the Housing Bubble Collapse, and the ensuing the Banking Collapse.
This is part of series of Articles which we will run here to explain what has yet to be explained in a comprehensive way so we can dispel all the lies regarding, "It was Bush's Fault."
And as to the ridicule of the left, They want to keep, unblemished, the record of their Golden boy, President Bill Clinton and the entire Democratic Party. And we know that if President Bush was not the fall guy we would have not seen the immediate debacle in the election of President Obama, the first or second time.
Posted by: Peter Coy on February 27, 2008
Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place.
President Bush continued the practices because they dovetailed with his Ownership Society goals, and of course Congress was strongly behind the push. But Clinton and his administration must shoulder some of the blame.
In writing this blog entry, I’m following the lead of Joseph R. Mason, who is a finance professor at Drexel University’s LeBow College of Business, a senior fellow at the University of Pennsylvania’s Wharton School, and a consultant at Criterion Economics. Here is a link to a piece that he wrote on Feb. 26.
The Clinton-era document that Mason cites—“The National Homeownership Strategy: Partners in the American Dream”—was hiding in plain sight
on the website of the Department of Housing & Urban Development until last year, when according to Mason it was removed (probably because the housing bust made it seem embarrassing to the department). Mason credits Joshua Rosner of Graham Fisher & Co. with saving a copy of it before it was expunged.
The National Homeownership Strategy began in 1994 when Clinton directed HUD Secretary Henry Cisneros to come up with a plan, and Cisneros convened what HUD called a "historic meeting" of private and public housing-industry organizations in August 1994. The group eventually produced a plan, of which Mason sent me a PDF of Chapter 4, the one that argues for creative measures to promote homeownership.
The very worst idea in the plan, which fortunately never gained approval, was to let first-time homebuyers freely tap their IRA and 401(k) retirement-savings plans with no penalty to scrounge up a downpayment. That, HUD estimated, would have "benefited" 600,000 families in the first five years.
Plenty of other ideas in the plan did become reality, though. Knowing what we know now about the housing bust, the earnest language in the document seems faintly ridiculous. Here's an excerpt. Read it closely and you can see the seeds of disaster being planted:
For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.
Note the praise for "creativity." That kind of creativity in stretching boundaries we could use less of. Mason puts it well: "It strikes me as reckless to promote home sales to individuals in such constrained financial predicaments."
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