Barney Frank’s Bad Loans

On October 8, the New York Times wrote a story on the Federal Housing Administration (F.H.A.) stating:

Many of the loans the F.H.A. insured in 2007 and last year are now turning delinquent, agency officials acknowledge. The loans made in those two years are performing “far worse” than newer loans, dragging down the whole portfolio, Mr. Stevens of the F.H.A. said in an interview.

The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.

Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

In other words, Frank approved of the policy of increasing the number of loans even to people who couldn’t really afford to pay their mortgages.

In fact, this is nothing new. As the Boston Globe wrote last year (Note: I wholly disclaim and disagree with any racism in the Globe’s reporting, and I do not necessarily agree with – and am not commenting on – its critique of liberal goals):

Barney Frank’s talking points notwithstanding, mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so – or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to “meet the credit needs” of “low-income, minority, and distressed neighborhoods.” Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime” lending by authorizing ever more “flexible” criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. “Lack of credit history should not be seen as a negative factor,” the Fed’s guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as “valid income sources” to qualify for a mortgage. Failure to comply could mean a lawsuit.

As long as housing prices kept rising, the illusion that all this was good public policy could be sustained. But it didn’t take a financial whiz to recognize that a day of reckoning would come. “What does it mean when Boston banks start making many more loans to minorities?” I asked in this space in 1995. “Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today’s self-congratulating bankers, politicians, and regulators plans to take the credit?”…

The Globe goes on to show that Frank has been the main enabler of Fannie and Freddie.

Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that “these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis.” When the White House warned of “systemic risk for our financial system” unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

Now that the bubble has burst and the “systemic risk” is apparent to all, Frank blithely declares: “The private sector got us into this mess.” Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.

As I have repeatedly written, the financial crisis was not caused solely by idiots on the right or idiots on the left.

It was caused by both. Idiocy – like corruption – is bipartisan.

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  • http://Anonymousnoreply@blogger.com Anonymous

    when you are a compromised homosexual in government, who has likely been ensnared in espionage and bribery as Barney 'sword swallower' Frank no doubt has, it's amazing you don't get sent to a special hellhole, not club FED, prison, when found out about such criminality as clearly bribery and bribe taking applies here.this scum should be brought up on charges and then like his buddy, Lindsay the faggot, Graham cracker, be tossed out of the government and made to suck dick on street corners to earn their scummy living from here on, for all the treason they've both committed.corruption isn't on one side of the aisle. it's completely PERMEATED our government to the CORE.

  • http://Anonymousnoreply@blogger.com Anonymous

    –"As I have repeatedly written, the financial crisis was not caused solely by idiots on the right or idiots on the left.It was caused by both. Idiocy – like corruption – is bipartisan."–Some perspective is due here.Human "intelligence" is such a fine line, dicing it any further -with separate solely human notions of either genius or idiocy, seems a fancifully moot topic of discussion, if one appropriately found on an economics discussion board.Continuing on in that vein-We live in an imperfect human world corrupted by greed, ignorance and a blindfold that prevents any of us from seeing reality.As such -I plowed a tenth of my net worth into FreddieMac common shares today.I know the markets are corrupt.I did so because they are corrupt.The investment-rationale I gave myself is that the economy need not recover; nor does housing need to adjust favorably to the new economic paradigm -for me to reach my investment goal of doubling my net worth.All that needs to happen is for the apparently ubiquitous liars of the financial industry both within government and outside government -to lie about the prospects for economic recovery and to cast a faint glimmer of hope about the mortgage industry, for FreddieMac shares to rise from $1.72 (where they closed today), and, go up 10 times into the $17 range.Just over two years ago FRE was an $80 stock.One of the goals of re-pressurizing the credit industry with bail-out money, is to drive stocks like FreddieMac back up.The doubling my net worth will be accomplished if the investment of 10% of my net work goes up just over 10 times.The credit economy is a fraud through and through.But the credit economy is about real money, folks.

  • http://Anonymousnoreply@blogger.com Anonymous

    All the vitriol with the comments, judgments (whoa, those SURE WERE CLEVER) is at odds with the salient facts: There is nothing wrong with real estate loans to risky customers, AS LONG AS the loans stay with the source lender. What caused the problems were NOT the loans, it was the (1) over-appraisals by lenders' assessors (no downside to over appraising) and (2) securitizing NON-RATEABLE Assets into Bonds, which were then Triple-A rated…Bonds composed of zip codes, not EVEN THE ACTUAL home address!Sure, as Barney Frank says, "It's good business because the BANKS ARE NOT LENDING! We are in a recession with HUGE unemployment! Of course, you are going to see defaults…people are losing their jobs! From 95% of the loans getting paid, to 93% of the loans getting paid…my oh my…is it a recession…really?The fact that a stock was one price or another depends on the demands of the BIG FIVE traders, and where THE BIG FIVE need the price. Learn anything? Stock trading is a zero-sum game, and you are zero giving up sums of money. Ask William Black, the FRAUD investigator for the S&L crisis. This whole "Barney Frank and CRA and those Liberals!!!!" is all smoke to cover the tracks of the real fraudsters, Goldman Sachs and the others.

  • http://www.blogger.com/profile/14666572909146798014 Succulentguy

    I am so sorry, but I'm forced to hold Barney to a higher standard. And what do I get, another Roy Cohn.

  • http://Anonymousnoreply@blogger.com Anonymous

    We have been mislead by Reagan, Bush Sr, Clinton, Bush Jr, Obama, and nearly every other public figure. Economic growth, job creation, and actual prosperity are not necessarily a package deal. In fact, the first two are horribly misunderstood. Economic growth/loss (GDP) is little more than a measure of wealth changing hands. A transfer of currency from one party to another. The rate at which it is traded. This was up until mid '07' however, has never been a measure of actual prosperity. Neither has job creation. The phrase itself has been thrown around so often, and in such a generic political manner, that it has come to mean nothing. Of course, we need to have certain things done for the benefit of society as a whole. We need farmers, builders, manufacturers, transporters, teachers, cops, firefighters, soldiers, mechanics, sanitation workers, doctors, managers, and visionaries. Their work is vital. I'll even go out on a limb and say that we need politicians, attorneys, bankers, investors, and entertainers. In order to keep them productive, we must provide reasonable incentives. We need to compensate each by a fair measure for their actual contributions to society. We need to provide a reasonable scale of income opportunity for every independent adult, every provider, and share responsibility for those who have a legitimate need for aid. In order to achieve and sustain this, we must also address the cost of living and the distribution of wealth. Here, we have failed miserably. The majority have already lost their home equity, their financial security, and their relative buying power. The middle class have actually lost much of their ability to make ends meet, re-pay loans, and support their own economy. The lower class have gone nearly bankrupt. In all, its a multi-trillion dollar loss taken over about 30 years. Millions are under the impression that we need to create more jobs simply to provide more opportunity. as if that would solve the problem. It won't. Not by a longshot. Jobs don't necessarily create wealth. In fact, they almost never do. For the mostpart, they only transfer wealth from one party to another. A gain here. A loss there. Appreciation in one community. Depreciation in another. In order to create net wealth, you must harvest a new resource or make more efficient use of one. Either way you must have a reliable and ethical system in place to distribute that newly created wealth in order to benefit society as a whole and prevent a lagging downside. The 'free market' just doesn't cut it. Its a farce. Many of the jobs created are nothing but filler. The promises empty. Sure, unemployment reached an all-time low under Bush. GDP reached an all-time high. But those are both shallow and misleading indicators. In order to gauge actual prosperity, you must consider the economy in human terms. As of '08' the average American was working more hours than the previous generation with less equity to show for it. Consumer debt, forclosure, and bankruptcy were also at all-time highs. As of '08', every major city was riddled with depressed communities, neglected neighborhoods, failing infrastructures, and gang activity. All of this has coincided with massive economic growth and job production. Meanwhile, the rich have been getting richer and richer and richer. Our nation's wealth has been concentrated. Again, this represents a multi-trillion dollar loss taken by the majority. Its an absolute deal breaker. Bottom line: With or without economic growth or job production, you must have a system in place to prevent too much wealth from being concentrated at the top. Unfortunately, we don't. Our economy has become nothing but a giant game of Monopoly. The richest one percent are horribly over-paid. They already own nearly 1/2 of all United States wealth. More than double their share before Reagan took office. Still, they want more. They absolutely will not stop. Now, our society as a whole is in serious jeapordy. Greed kills.

 

 

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