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September 29, 2008

Obama's Not So Affordable Housing

Interesting video on the causes of the credit crisis, via my Dad:

Where the video really gets interesting is at about 6:28, where it asks:

...you'll never guess who worked at a law firm that sued banks for not issuing enough subprime loans?

The sued Citibank. Nobody likes discrimination. Everybody deserves a home... not a house of cards:

... CRA [Community Reinvestment Act]-facilitated migration makes the mortgage terms of groups like NACA particularly troubling. In a September 1999 story, the Wall Street Journal reported, based on a review of court documents by Boston real estate analyst John Anderson, that the Fleet Bank initiated foreclosure proceedings against 4 percent of loans made for Fleet by NACA in 1994 and 1995—a rate four times the industry average. Overextended buyers don't always get much help from their nonprofit intermediaries, either: Boston radio station WBUR reported in July that home buyers in danger of losing their homes had trouble getting their phone calls returned by the ACORN Housing group.

NACA frankly admits that it is willing to run these risks. It emphasizes the virtues of the counselling programs it offers (like all CRA groups) to prepare its typical buyer—"a hotel worker with an income of $25K and probably some past credit problems," says a NACA spokesman—and it operates what it calls a "neighborhood stabilization fund" on which buyers who fall behind on payments can draw. But Bruce Marks says that he would consider a low foreclosure rate to be a problem. "If we had a foreclosure rate of 1 percent, that would just prove we were skimming," he says. Accordingly, in mid-1999, 8.2 percent of the mortgages NACA had arranged with the Fleet Bank were delinquent, compared with the national average of 1.9 percent. "Considering our clientele," Marks asserts, "nine out of ten would have to be considered a success."

The no-down-payment policy has sparked so sharp a division within the CRA industry that the National Community Reinvestment Coalition has expelled Bruce Marks and NACA from its ranks over it. The precipitating incident: when James Johnson, then CEO of Fannie Mae, made a speech to NCRC members on the importance of down payments to keep mortgage-backed securities easily salable, NACA troops, in keeping with the group's style of personalizing disputes, distributed pictures of Johnson, captioned: "I make $6 million a year, and I can afford a down payment. Why can't you?"

...The group likes to promote, for instance, the story of Renea Swain-Price, grateful for NACA's negotiating on her behalf with Fleet Bank to prevent foreclosure when she fell behind on a $1,400 monthly mortgage payment on her three-family house in Dorchester. Yet NACA had no qualms about arranging the $137,500 mortgage in the first place, notwithstanding the fact that Swain-Price's husband was in prison, that she'd had previous credit problems, and that the monthly mortgage payment constituted more than half her monthly salary. The fact that NACA has arranged an agreement to forestall foreclosure does not inspire confidence that she will have the resources required to maintain her aging frame house: her new monthly payment, in recognition of previously missed payments, is $1,879.

Do you get the feeling more than a few people weren't facing reality? And yet if you try to suggest that "affordable housing" wasn't the problem, you're demonizing the poor.

It wasn't the poor who caused this problem. It was people who insisted on a solution that ignored the reality that if you're poor, you may not be able to keep up mortgage payments that exceed your take home pay and then allowed speculators to make obscene profits on the backs of people who were lured into reaching for a brass ring that was, in reality, just beyond their grasp.

As the video goes on to point out, it would have made more sense to focus on building the skills needed to make poor people employable and raise their wages so they can truly afford better housing, not "give" them so-called "affordable mortgages" with adjustable rates that have balloon clauses which cause them to go into default when the housing market collapses, making them not so "affordable" after all.

If you're poor, the last thing you can "afford" is a mortgage payment that isn't predictable.

The last thing you can afford is a mortgage whose monthly payment goes UP when times get hard. Of all people, the poor have the least ability to deal with unpredictable expenses. They have no savings built up, no assets they can sell off to raise cash.

Who bails out the poor when government lures them into taking advantage of "affordable housing" they can't really afford? And where is the media on the question of accountability for this crisis?

In 2003, the Bush administration proposed reforms of Fannie Mae and Freddie Mac that the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago":

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

As in 2005, the proposed reforms were blocked by Democrats.

Including one Barack Obama.

Posted by Cassandra at September 29, 2008 06:30 AM

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When I was a kid, your sub-prime mortgage payment was called "rent."

Posted by: Sgt. Skinner at September 29, 2008 11:21 AM

WTF happened to the YouTube vid? Did it already get banned for talking against the Dems?

Posted by: Pat at September 29, 2008 05:12 PM

"This video is no longer available due to a copyright claim by Warner Music group".

Yeah. Right.

The Obama Truth Squad strikes again.

Posted by: Cass at September 29, 2008 05:25 PM

Here's a new link for the video!

Posted by: Pat at September 29, 2008 05:28 PM


I am working on a backup.

Posted by: Cass at September 29, 2008 05:38 PM