Who’s to blame for housing crisis?
Research group sees no leadership role by borrowers, government agencies in the crisis
As the 112th Congress begins and new committees are formed, our nation’s marathon housing crisis seems far from over and no sure cures to its billion-dollar economic effects have been identified. In the meantime, agencies and laws intended to expand affordable housing nationwide have now come under attack. So-called ‘risky borrowers,’ the Community Reinvestment Act and two government-sponsored enterprises—Fannie Mae and Freddie Mac—have all been accused of creating the lengthy downturn in housing and more than 2.5 million foreclosures.
Even a long-awaited report from the Financial Crisis Inquiry Commission—presidential appointees charged to provide an objective and thorough review of the still-unfolding dilemma split sharply along partisan lines about the causes and effects of the economic crisis.
But, according to the Center for Responsible Lending (CRL), an independent and nonpartisan research and policy organization, the culprits and leaders in the foreclosure crisis were clearly Wall Street firms that “securitized” subprime mortgages. A CRL Capitol Hill brief summarizes the findings.
As Wall Street securities expanded the subprime market, Fannie Mae and Freddie Mac’s market share diminished substantially. The government-sponsored enterprises losses were caused not by risky borrowers, but by risky loans, which were frequently loans that went to borrowers with relatively higher incomes.
In part, the new brief advises, “It’s well known that toxic subprime loans started the foreclosure crisis, and the disaster spread to other mortgages approved without properly qualifying borrowers. The facts show that Fannie Mae and Freddie Mac were followers, not leaders in the events leading up to today’s foreclosure epidemic.”
Securitization, the process of bundling thousands of mortgage loans into investment pools and then re-selling pieces to investors enabled loosely-regulated lenders, says CRL, to make loans and then quickly sell them to private firms that created mortgage-backed securities.
CRL also refutes widespread charges of risky borrowers and Community Reinvestment Act loans as causes for the housing crisis. The truth is that 94 percent of subprime mortgage loans were made by institutions not covered by CRL.
“Mortgage loans purchased by Fannie Mae and Freddie Mac–including loans to lower-income borrowers–are performing better than the private market. As of June 2010, 13.35 percent of GSE loans to borrowers with credit scores under 660 were 90 plus days delinquent or in foreclosure. By comparison, the Mortgage Bankers Association reports that the serious delinquency rate for subprime loans was over 28 percent,” says CRL.
To read the full CRL Capitol Hill issue brief, visit:
Lawmakers would be well-advised to focus on the facts and to seek sustainable answers instead of new villains. Before the housing bubble burst, modest increases in African American homeownership were achieved. Now, the effects of the extended housing crisis have erased those same gains.
According to the Center for American Progress (CAP), in the third quarter of 2010, the homeownership rate for African Americans was 45 percent. The homeownership rate for Latinos was 47 percent, and the homeownership rate for Whites was 74.7 percent.
Further, as the national unemployment rate hovers near 10 percent, communities of color are suffering more. The unemployment rate for African Americans was 15.8 percent in the fourth quarter of 2010, compared to 12.9 percent for Latinos, 7.3 percent for Asian Americans, and 8.7 percent for Whites, also according to the CAP.
What all Americans need–regardless of race or ethnicity–are solutions to shared problems, access to fair lending, and reasonable, transparent terms for all lending products.
Somebody should deliver that message to Congress.
Charlene Crowell, Communications Manager is the State Policy & Outreach Center for Responsible Lending
In a recent speech before the Operation HOPE Global Financial Dignity Summit in Atlanta, Ben Bernanke, chairman of the Federal Reserve, warned that the current housing recovery is leaving communities of color behind. In his remarks, he acknowledged that racial discrimination in housing persists despite federal fair housing laws and the Community Reinvestment Act.
Earlier this week new data from the U.S. Census Bureau announced that 46 million Americans now live in poverty; it is the largest number in the 52 years for which poverty estimates have been published. Since 2007, poverty has increased in 46 states and today affects one of every four American children.
As it grips more and younger Americans, there is also evidence that poverty is speaking with a southern accent. The South is now home to 1.5 million of the 2.6 million people who became poor from 2009 to 2010.
In August 2010, the Federal Reserve Board directed banks to seek customer approval before enrolling them in high-cost overdraft coverage. Now nearly a year later, a new survey by the Center for Responsible Lending finds there are still lingering consumer misperceptions as to what consumers believe they were actually signing up for. Among consumers who opted in to overdraft, 64 percent thought they were getting coverage to avoid bounced checks even though overdraft only affects debit card and ATM transactions.
In the latest of a series of research reports, the Center for Responsible Lending (CRL) has found that payday loan customers remain indebted double the time that the Federal Deposit Insurance Corporation recommends.
Right now, the Internal Revenue Service (IRS) is preparing for this year’s tax season and an estimated 140 million individual tax returns. Eager tax filers will be tempted to use one of the temporary neighborhood business locations that open their doors each year in the name of convenient and quick tax preparation. But, as with many quick cash offers, a significant cost is incurred for services marketed as either Refund Anticipation Loans (RALs) or as Refund Anticipation Check (RACs).