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Additional Information  Yet again, Team Obama is rewarding reckless behavior, punishing the 90% of responsible homeowners who are making good on their mortgages, and setting up a greater moral hazard that will surely lead to an expansion of bailout nation.

I'm talking about an add-on to HAMP, the $75 billion Home Affordable Modification Program, which has been a dismal failure. In fact, the entire foreclosure-prevention effort — including forgiveness of mortgage-loan principal — has been a failure.

The Office of the Comptroller of the Currency reports that nearly 60% of modified mortgages re-default within a year. Team Obama would actually subsidize people making up to $186,000 a year who have a mortgage balance of over $700,000. This isn't even a middle-class entitlement. It's an upper-middle-class entitlement. 

I don't want you to pay for my mistakes. And I don't want to pay for yours. That's an oft-heard Tea Party complaint, and it's a good one. Why should the 90% of folks who make good financial decisions on their homes have to pay for the 10% who did not?

Or put it another way, just because a home loan is "underwater" — meaning its value is lower than today's current market price — why should a responsible person whine about it and walk away? Why not service this loan for the longer term and wait for prices to improve? That's called personal responsibility. There's no evidence any bank, including Citibank, got into trouble because of a securities or insurance affiliate. The banks that suffered subprime losses were engaged in activities — namely, mortgage lending — that were always permitted by Glass-Steagall.   And none of them was affiliated at the time with the investment banks that got into trouble — namely, Lehman, Bear Stearns and Merrill Lynch, which overinvested in subprime securities. And they did so after Fannie Mae and Freddie Mac made a huge market for such investments in response to political pressure from Clinton’s HUD to meet affordable housing goals.

Finally, Glass-Steagall deregulation had nothing to do with the gutting of traditional mortgage underwriting standards — the core cause of the crisis.

Quite the opposite, this was a function of overregulation. Federal housing regulators pressured Fannie and Freddie and private lenders to reduce underwriting rules mainly during Clinton and then continued under the Bush administrations to boost minority home ownership.

Two years later, a young civil-rights lawyer by the name of Barack Obama shook down Citibank on behalf of alleged victims of racist lending rounded up by Acorn and National People's Action in a class-action lawsuit against the bank. Citi paid them off in a settlement.  Former Treasury Secretary Robert Rubin, a big CRA booster, pushed Citi even deeper into risky multicultural lending when he went to work there.  Corporate do-goodism got the best of Citigroup in 2007, when it bought subprime operator Ameriquest, in part to impress CRA extortionists. 


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Washington, D.C., Dec. 16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, Director of the SEC's Enforcement Division. "These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

The SEC's complaint against the former Fannie Mae executives alleges that, when Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those "made to borrowers with weaker credit histories," and then reported — with the knowledge, support, and approval of Mudd, Dallavecchia, and Lund — less than one-tenth of its loans that met that description. Fannie Mae reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2 percent, or approximately $4.8 billion, of its Single Family loan portfolio. Investors were not told that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or "EA" loans.  Fannie Mae's executives also knew and approved of the decision to underreport Fannie Mae's Alt-A loan exposure, the SEC alleged. Fannie Mae disclosed that its March 31, 2007 exposure to Alt-A loans was 11 percent of its portfolio of Single Family loans. In reality, Fannie Mae's Alt-A exposure at that time was approximately 18 percent of its Single Family loan holdings.  The misleading disclosures were made as Fannie Mae's executives were seeking to increase the Company's market share through increased purchases of subprime and Alt-A loans, and gave false comfort to investors about the extent of Fannie Mae's exposure to high-risk loans, the SEC alleged.

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page 7:  Affordability products: To provide an alternative to risky subprime products, we have purchased or guaranteed more than $53 billion this year in Fannie Mae loan products with low down payments, flexible amortization schedules, and other features.

Increased securitization: Demand for loan securitization in our conventional 15- and 30-year

products has increased dramatically, and we expect 2007 to be our single biggest year in history for growth in Fannie Mae MBS outstanding.

Page 16: We are a government-sponsored enterprise (“GSE”) chartered by the U.S. Congress under the name “Federal National Mortgage Association” and are aligned with national policies to support expanded access to housing and increased opportunities for homeownership. We are subject to government oversight and regulation. Our regulators include the Office of Federal Housing Enterprise Oversight (“OFHEO”), the Department of Housing

and Urban Development (“HUD”), the SEC, and the Department of the Treasury.

Page 19: Our lender customers supply mortgage loans both for securitization into Fannie Mae MBS and for purchase for our mortgage portfolio. During 2006, over 1,000 lenders delivered mortgage loans to us, either for securitization or for purchase. We acquire a significant portion of our single-family mortgage loans from several large mortgage lenders. During 2006, our top five lender customers, in the aggregate, accounted for approximately 51% of our single-family business volume compared with 49% in 2005. Our top customer, Countrywide Financial Corporation (through its subsidiaries), accounted for approximately 26% of our singlefamily business volume in 2006 compared with 25% in 2005. Page 29 of 328: Annual Housing Goals and Subgoals

For each calendar year, we are subject to housing goals and subgoals set by HUD. 

We report our progress toward achieving our housing goals to HUD on a quarterly basis, and we are required to submit a report to HUD and Congress on our performance in meeting our housing goals on an annual basis.

Page 31 of 328:  We have made significant adjustments to our mortgage loan sourcing and purchase strategies in an effort to  meet the increased housing goals and subgoals. These strategies include entering into some purchase and securitization transactions with lower expected economic returns than our typical transactions. We have also relaxed some of our underwriting criteria to obtain goals-qualifying mortgage loans and increased our investments in higher-risk mortgage loan products that are more likely to serve the borrowers targeted by HUD’s goals and subgoals, which could further increase our credit losses. The Charter Act explicitly authorizes us to undertake “activities ... involving a reasonable economic return that may be less than the return earned on other activities” in order to support the secondary market for housing for low- and moderateincome families. We continue to evaluate the cost of these activities. Meeting the higher goals and subgoals for 2007 in the face of previous increases in home prices and, more recently, higher interest rates, which have reduced housing affordability during the past several years, is extremely challenging.

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Additional Information What President Obama has been pushing for, and moving toward, is more insidious: government control of the economy, while leaving ownership in private hands. That way, politicians get to call the shots but, when their bright ideas lead to disaster, they can always blame those who own businesses in the private sector.

Politically, it is heads-I-win when things go right, and tails-you-lose when things go wrong. This is far preferable, from Obama's point of view, since it gives him a variety of scapegoats for all his failed policies, without having to use President Bush as a scapegoat all the time.  Government ownership of the means of production means that politicians also own the consequences of their policies, and have to face responsibility when those consequences are disastrous — something that Barack Obama avoids like the plague.  Thus the Obama administration can arbitrarily force insurance companies to cover the children of their customers until the children are 26 years old. Obviously, this creates favorable publicity for President Obama. But if this and other government edicts cause insurance premiums to rise, then that is something that can be blamed on the "greed" of the insurance companies.

The same principle, or lack of principle, applies to many other privately owned businesses. ( BANKS, ENERGY COMPANIES etc.) It is a very successful political ploy that can be adapted to all sorts of situations.  What socialism, fascism and other ideologies of the left have in common is an assumption that some very wise people — like themselves — need to take decisions out of the hands of lesser people, like the rest of us, and impose those decisions by government fiat.  So long as we buy their heady rhetoric, we are selling our birthright of freedom.

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The Subprime Lending Bias

Media: If, as they say, it's journalists who write history's first draft, then future texts will be riddled with errors about the origins of the subprime disaster, teaching future leaders the wrong lessons.

Just how did Americans come to lose $10 trillion in real estate and stock wealth? And why are our children and grandchildren on the hook for as much as $8 trillion in federal bailout money? These are some of the most important questions of our time. Yet the mainstream media, plagued by monopartisan bias, are not providing the public honest answers.

Take, for instance, a recent front-page article in the Washington Post, under the headline, "How HUD Mortgage Policy Fed the Crisis." The piece correctly fingers HUD for helping fuel risky lending at Fannie Mae and Freddie Mac. But the newspaper starts its analysis in 2004 (in fact, the first sentence begins, "In 2004 ... "), making it seem as if the Bush administration crafted "affordable housing" policy and created the subprime market.

The Post knows better. The Bush HUD merely continued a politically correct policy launched by the Clinton administration. For the first time, President Clinton ordered HUD to set quotas for Fannie and Freddie to buy huge portions of Community Reinvestment Act loans and other low-income mortgages made to borrowers with poor credit. The Post failed to mention this key fact.

By 2000, fully half of the mortgage giants' portfolios consisted of these risky loans, most of them subprime mortgages. In effect, the Clinton HUD set a time bomb that would explode years later with the collapse of home prices, which happened to occur on Bush's watch.

The Post also provided just one side of the data in its story. The paper said that Bush "ratcheted up" the affordable-housing goal for Fannie and Freddie, from 50% to 56%. But it left out the fact that the previous president, Bill Clinton, the liberal Democrat, institutionalized the quota and ballooned it up to 50%. Which move do you think had a greater impact on the subprime market?

At the same time, HUD pressured the federally subsidized giants to lower their loan-to-value ratios and other underwriting requirements to accommodate minority borrowers. HUD Secretary Andrew Cuomo even admitted that the administration was mandating a policy of "affirmative action" lending (his words, not ours).

And it was Clinton who initially spread the subprime rot to Wall Street. To help Fannie and Freddie reach their "affirmative action" lending quotas, HUD in 1995 let them get affordable-housing credit for buying subprime securities that included loans to low-income borrowers.

Less than two years later, Freddie partnered with Wall Street investment banker Bear Stearns to issue the first securitizations of low-income CRA loans.

There's even a press release still available on the Web that memorializes the historic deal, which dumped hundreds of millions of dollars in the risky loans on the market — a down payment on the hundreds of billions that were to follow.

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The new hit movie "The Big Short," based on Michael Lewis' bestselling book, is an entertaining and suspenseful reenactment of all the breakdowns in the banking and housing industries that caused the financial world to go collectively mad and the many unsavory characters.  It brings back bad memories of how symbiotic relationships among auditors, credit rating agencies, banks and insurance companies created dastardly conflicts of interest.  I've never understood why auditors and credit rating agencies work for the financial institutions, not the investors.  The credit agencies were giving triple-A bond ratings to junk mortgage-backed securities without even examining the unpayable low down payment "NINJA" (no income, no job) loans in the portfolios. These ratings were handed out right up to the very eve of the crash.  The big banks kept buying more and more of these MBSes, even as the default rates were skyrocketing. Government regulators encouraged them to buy as many of these "safe" mortgages as possible to meet capital requirements.  "The Big Short" portrays well the infuriating dereliction of the auditors, the rating agencies, the mortgage originators, the bankers, the securitizers — and, yes, the homebuyers too.   Where the movie falls short is its moralizing at the end. It portrays "capitalism" and "greed" as the villains.  But the real insanity of the bubble is that so few of the people who made financially reckless decisions went bankrupt.   Capitalism doesn't work if the government provides a trampoline-sized safety net for those who take risks that don't pay off. By encouraging the breakdown of due diligence and underwriting standards, bailouts create bubbles.  "The Big Short" also neglects to even once mention the worst actors of all in the financial meltdown: Fannie Mae and Freddie Mac. These two government-run institutions lost $150 billion of taxpayer money by securitizing mortgages and providing near 100% guarantees on repayment.  Also never mentioned was that GOVERNMENT first caused the erosion of sound lending practices through the Community Reinvestment Act. The politicians kept pushing the banks to make riskier loans to lower-income borrowers in the name of "fairness."  The insanity continues in part because no one has learned the right lessons from 2008. Regrettably, "The Big Short" doesn't teach them.

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Barnie Frank was one of the architects of the 1992 legislation authorizing HUD to slap the affordable housing goals on Fannie and Freddie in the first place. Congress, enacting the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, allowed legislation to "amend and extend certain laws relating to housing and community development." The Act created the Office of Federal Housing Enterprise Oversight (OFHEO) within HUD to "ensure that Fannie Mae and Freddie Mac are adequately capitalized and operating safely." It also "established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas."

Rep. Jim Leach (R-Iowa) warned about the impending danger non-regulated GSEs posed. As the Washington Post reports, his concern was that Congress was "hamstringing" the regulator. Complaint was that OFHEO was a "weak regulator." Leach worried that Fannie Mae and Freddie Mac were changing "from being agencies of the public at large to money machines for the stockholding few."

the Times' one-sided story. The paper's reporters didn't even bother to search their own archives. Had they done so, they would have found a Sept. 20, 1999, article by Steven A. Holmes that reported:

"Fannie Mae has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people."

It quoted former Clinton Budget Director Franklin Raines, who Clinton installed at the helm of Fannie. Raines said he had relaxed credit standards to meet the Clinton administration's goal of 50% loans to low-income minority borrowers.

Further on in the story, a highly regarded scholar warned that Fannie was taking on too much risk and could fail if the housing market ran into trouble.

"If they fail," warned American Enterprise Institute fellow Peter Wallison, "the government will have to step up and bail them out."

His warning was not unique. There were many like it back then. Even Clinton's own Treasury Secretary Lawrence Summers in 1999 and 2000 warned of the dangers subprime lending posed, well before Bush was in office.

Winter 2000 The City Journal warned that the Clinton administration had turned CRA into "a vast extortion scheme against the nation's banks," committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers.

Cuomo's Quotas  

Subprime Scandal: Andrew Cuomo is running for governor of a state whose economy he helped sink when he ran the agency regulating Fannie and Freddie's "affordable housing" mission.

The Democratic candidate's role in the subprime mortgage scandal has not come out in New York's gubernatorial debates or in the media. But he's a chief reason Fannie and Freddie invested so heavily in the subprime loans still plaguing the mortgage giants and the overall economy.

As HUD secretary from 1997 to 2001, Cuomo pushed government-sponsored Fannie and Freddie to buy more home loans to low-income borrowers with impaired credit, in an attempt to end what he thought was lending discrimination against minorities. By 1999, they had committed $1 trillion in such high-risk loans.

But Cuomo still was not happy. So in 2000, he hiked their affordable-housing quota to 50%. That meant Fannie and Freddie had to devote fully half their mortgage financing to "underserved" borrowers with unproven or damaged credit. To help them meet that drastic new goal, Cuomo pressured them to relax their lending criteria and invest in subprime loans. He also authorized them to buy subprime securities.

In November 2000, HUD Secretary Andrew Cuomo issued a press release trumpeting the government's reckless plans: "HUD Announces New Regulations to Provide $2.4 Trillion in Mortgages for Affordable Housing for 28.1 Million Families."

This isn't ancient history. The quota Cuomo set in 2000 remained in force through 2004 and beyond. Four years after he required Fannie and Freddie to commit half their lending to support affordable housing, they together commanded almost half the subprime securities market.

Credit quality suffered while risk soared. By 2005, most of the loans they'd bought had down payments of 3% or less. Many had no down payment at all. By 2008, Fannie and Freddie had drowned in a toxic soup of bad subprime paper.

Relevance to New York voters? Like the rest of taxpayers, they are on the hook for an estimated $1 trillion in losses in what could end up being the mother of all bailouts. Meanwhile, related foreclosures are still rattling Wall Street.

Subprime lender Countrywide Financial was Fannie's biggest customer, and now it's Bank of America's biggest headache. BofA can't finalize foreclosures and liquidate the toxic debt it inherited from Countrywide until it untangles the chain of title on the subprime mortgages its subsidiary originated and sold to Fannie.

Ex-Fannie chief credit officer Ed Pinto blames Cuomo for the mess. He says he and other HUD officials "should have known the risks were large," adding that "Cuomo was pushing mortgage bankers to make loans and basically saying you have to offer a loan to everybody." Why? Because like Bill Clinton, whose housing policies he was following, Cuomo championed the faulty notion that "racist" bankers erected barriers to minority homebuyers, creating a "mortgage gap." And he was hellbent on closing it.

Four federal agencies enforce the CRA, a banking regulation whose original purpose of encouraging homeownership among the poor was well-intended These agencies, which over the years have become entrenched in pushing the act, include the FDIC, Office of Thrift Supervision, the Comptroller of the Currency and the Federal Reserve. Top agency officials each took a turn Monday defending the CRA during a C-SPAN-covered panel discussion on the housing crisis.

OTS director John Reich insisted it "had absolutely nothing to do with the mortgage crisis." FDIC chief Sheila Bair said it was a "myth," adding that "it's really unfortunate that this is out there." "It's simply not true," she asserted. Next up was Comptroller of the Currency John Dugan, who agreed the CRA "certainly was not the cause of the subprime crisis."

Though they offered little evidence to support their assertions, a Fed governor released findings of a study the Fed did with the Brookings Institution to quash the idea the CRA encouraged high-risk subprime lending to uncreditworthy borrowers.

In a speech to the "Confronting Concentrated Poverty Policy Forum," Randall Kroszner asserted that CRA-mandated loans are "nearly as profitable" as conventional loans. He cited a 2000 Fed study on CRA loan performance.

A careful reading of the 99-page report finds evidence that seems to undercut his conclusion that CRA loans are just as safe. For example, the study found that "nearly 90% of large banking institutions report higher 30-89 day delinquency rates for CRA-related home lending than for overall home lending."

That little gem was left out of Kroszner's argument, along with this one: "CRA-related home loans do not appear to perform as well as other home loans when the analysis is conducted on a per CRA-dollar basis."

What do current data show? "Unfortunately," Kroszner said, "the available data on loan performance do not let us distinguish which specific loans in lower-income areas were related to the CRA." In other words, he doesn't really know, and therefore can't clear the CRA. All this Government Oversight of the banks and Affordable Housing mandates…How did they do??  (Affordable Healthcare coming to you soon…)  On March 8, 1994, the Comptroller, as a member of the Interagency Task Force on Fair Lending, joined with the top officials of the nine other member agencies to announce a policy statement on discrimination in lending. The policy statement has been formally approved and adopted by the member agencies and was published in the Federal Register on April 15, 1994.  The agencies participating in the Interagency Task Force on Fair Lending are (10 GOVERNMENT agencies that OVERSEE & ENFORCED policies and procedures that produced the Clinton & Democrat Housing Crisis with our banks and lenders.  Government is the problem here.  These 10 agencies oversee our banks and lenders.  They didn’t stop the crisis did they, no because they caused it.  You think the government can miraculously oversee things now???

1. The Department of Housing and Urban Development
2. The Department of Justice 

  1. The Office of the Comptroller of the Currency 
  2. The Board of Governors of the Federal Reserve 
  3. The Office of Thrift Supervision 
  4. The Federal Deposit Insurance Corporation 
  5. The Federal Housing Finance Board 
  6. The National Credit Union Administration 
  7. The Federal Trade Commission 
  8. The Office of Federal Housing Enterprise Oversight 

The task force policy statement on fair lending describes what constitutes discrimination under the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FH Act) for purposes of administrative enforcement of those statutes. It will be used by the agencies as a tool for administrative enforcement of fair lending statutes. The policy statement applies to all lenders, including banks and thrifts, credit unions, mortgage brokers, finance companies, retailers, credit card issuers and any other persons or entities who extend credit of any type. SUMMARY: The Department of Housing and Urban Development (HUD), the 

Office of Federal Housing Enterprise Oversight (OFHEO), the Department 

of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), 

the Office of Thrift Supervision (OTS), the Board of Governors of the 

Federal Reserve System (Board); Federal Deposit Insurance Corporation 

(FDIC); Federal Housing Finance Board (FHFB), the Federal Trade 

Commission (FTC), and the National Credit Union Administration (NCUA) 

(collectively, ``the Agencies'') have adopted a statement entitled 

``Policy Statement on Discrimination in Lending'' that describes the 

general principles that these Agencies will consider to identify 

lending discrimination in violation of the Equal Credit Opportunity Act or the Fair Housing Act. 

The Community Reinvestment Act (``CRA''), 12 U.S.C. 2901 

et seq., seeks affirmatively to encourage institutions to help to meet 

the credit needs of the entire community served by each institution 

covered by the statute, and CRA ratings take into account lending 

discrimination by those institutions.

When a lender's treatment of two applicants is compared, even when 

there is an apparently valid explanation for a particular difference in treatment, further investigation may establish disparate treatment on a 

prohibited basis.

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Setting the Record Straight: Six Years of Unheeded Warnings for GSE Reform

Over the past six years, the President and his Administration have not only warned of the systemic consequences of failure to reform GSEs but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties.  In fact, it was Congress that flatly rejected President Bush's call more than five years ago to reform the GSEs.  Over the years, the President's repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems with the GSEs. 

2002  May: The Office of Management and Budget (OMB) calls for the disclosure and corporate governance principles contained in the President's 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac.  (OMB Prompt Letter to OFHEO, 5/29/02) 2003  February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that "although investors perceive an implicit Federal guarantee of [GSE] obligations," "the government has provided no explicit legal backing for them." As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.  ("Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03) 

The Bush administration today recommended 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.

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Additional Information The so-called FAS 157 rule, which the public took little notice of, was imposed on the banks in 2007. It forced them to take what are long-term assets and mark them down as if they were short-term ones, based on current market conditions.

It might be coincidental, but this was about the same time that banks and other financial firms began suffering problems that have since left the world economy gasping for air.

In a time when markets around the world have been battered by the fiscal crisis, mark-to-market has made things worse. It has severely damaged banks' balance sheets, forcing them to shrink capital and rein in lending.

For capital adequacy purposes, bank assets have had to be marked down to market value even if loans are being paid on time. This is an inversion of long-standing banking practice. As economists Brian Wesbury and Bob Stein of First Advisors recently wrote, "The accounting rules force banks to take artificial hits to capital without reference to the actual performance of loans."

Bingo. From the late 1930s to 2007, the U.S. banking system was reasonably stable, with a few exceptions. One big reason for this is the absence of mark-to-market. The change of heart from FASB on mark-to-market was largely due to Congress. Who controlled congress???

Mark-to-market rules, while well intended, have historically been a problem. During the Depression, Nobel-winning economist Milton Friedman noted, mark-to-market rules caused many banks to fail. That's why FDR repealed them in 1938. Those rules had remained dead until two years ago, when they were reimposed as part of a frenzy of ill-considered financial reregulation.,-again The proof of this, for us, is that when the market understood that Barney Frank would force the end of mark-tomarket accounting on March 9, 2009 the stock market rally started. The bottom was a direct result of this change, not quantitative easing, TARP, stress tests, or any other government program. We thought the government would change mark-to-market accounting rules in 2008. Instead, politicians over-reacted and spent trillions. The end result was the first true economic panic in a hundred years. Where Kass sees a failure of capitalism, we see a failure of government. 

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Over 94% of AAA-rated subprime tranches experienced no losses at all.  While it was certainly not apparent at the time of the crisis, the overwhelming majority of subprime MBS performed as rated. Sen. Sander's assertion that the rating agencies knew their ratings were "bogus" is simply inconsistent with the performance of the rated assets.  So if subprime MBS performed as rated, why then did we have a crisis? For a number of reasons, one of which is that the over-leveraged nature of banks forced them to sell securities, including subprime MBS, as an avenue to cover mark-to-market losses that would have otherwise threatened their insolvency.  When many banks tried to sell the same securities at once, in an almost fire-sale manner, prices fell, reflecting the massive imbalance between the supply for sale and the much lower demand.  Subsequent research has found that it was the most highly leveraged companies that sold MBS during the crisis, and that those with greater capital shortfalls sold at greater discounts. Observed prices were ultimately reflective of illiquidity and the capital needs of sellers, not the long-run value of subprime MBS.  One contributor to fire sales is that banking regulation, including an overreliance on ratings, encourages uniformity in bank balance sheets. If everyone is required to hold only AAA and searches for yield within AAA, then everyone ends up with similar balance sheets.  Unfortunately, when many are forced to sell, they end up selling similar assets, resulting in fire-sale prices. Sanders is also wrong in suggesting that regulators or nonprofits would do a better job predicting default. After all, it was the international financial regulators, not the rating agencies, who decided that Greek debt was "risk-free."  Europe was not alone in this regard. For instance, the rating agencies had downgraded Washington Mutual, while its primary regulator still gave it a favorable Camels (CELS) rating.  Where the rating agencies erred most was in their forecast of housing prices. They clearly didn't see a bust coming. But neither did regulators or government forecasters. 

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Additional Information Did anyone notice that most foreclosures are in four states, including Harry Reid's Nevada? We also feel for the guy next door who gets nothing out of this. He's one of the 90% who bought houses they could afford with substantial and long-saved down payments, then worked hard and paid their mortgages on time. Obama insists we are our neighbor's keeper, but do we have to pay for remodeling his kitchen too?

A revealing study by researchers at the University of Virginia took a look at foreclosures in all 50 states, 35 metropolitan areas and 236 counties. They found that 87% of housing value loss, including foreclosures, is taking place in just four states — California, Florida, Arizona and Nevada.

Nevada, California, Arizona and Florida rank first, second, third and fourth in foreclosure activity, together accounting for 55% of foreclosure activity. What do they have in common? They are Sun Belt states, the location of second homes, investment properties and the playground of flippers who invested in properties hoping to ride the housing bubble to a quick profit.  The U.S. public is outraged at the $165 million in bonuses paid to employees of insurance giant American International Group after AIG received billions in government bailout funds — and Washington is looking for ways to make bonus recipients pay back the money. But what about bailed-out homeowners? Shouldn't they also pay back money they receive from taxpayers? The government can provide stressed homeowners the help they need — and recover much of the cost — simply by taxing most of the capital gains that bailout recipients realize on home sales until the value of the assistance is fully paid back to lenders and taxpayers. Let's be clear: The administration's plan to help homeowners avoid foreclosure is a giveaway to those homeowners. And a restitution policy would have many benefits besides reducing the burden on taxpayers and lenders and providing economic incentives for future homeowners to avoid similar mistakes.

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Fight the Smears conceded the New Party did support Obama in 1996 but denied that Obama had ever joined.  According to documents from the Democratic Socialists of America, the New Party worked with ACORN to promote its candidates. ACORN, convicted in massive, nationwide voter fraud cases, was a point of controversy for Obama during his 2008 campaign for president.  the New Party, which sought to elect members to public office with the aim of moving the Democratic Party far leftward to ultimately form a new political party with a socialist agenda.  Now, researcher and author Stanley Kurtz, writing at National Review Online today, reports on documentation from the updated records of Illinois ACORN at the Wisconsin Historical Society that “definitively establishes” that Obama was a member of the New Party. 

Frances Fox Piven, co-architect of a strategy to overload the U.S. welfare system to precipitate a transformative economic crisis, (this was also applied to our banking system by using CRA & HUD in coercing subprime loans, now with the EPA and our energy sector etc., Obamacare regulations on insurance companies, while passing the blame onto the banks, the energy companies, insurance companies etc.) was an early builder of the socialist-leaning New Party. Scores of other New Party activists, meanwhile, have been tied to President Obama. Before the crisis, Obama pushed thousands of credit-poor blacks into homes they couldn't afford. As a civil-rights attorney, he sued banks to rubberstamp mortgages for urban residents.  Many are now in foreclosure. In fact, the lead client in one of his class-action suits has since lost her home and filed bankruptcy.

First some background: Obama focused on "housing rights" when he worked as a lawyer-activist and community organizer in South Side Chicago. His mentor — the man who placed him in his first job there — was the father of the anti-redlining movement: John McKnight. He coined the term "redlining" to describe the mapping off of minority neighborhoods from home loans.  McKnight wrote a letter for Obama that helped him get into Harvard. After he graduated, he worked for a Chicago civil-rights law firm that worked closely with McKnight's radical Gamaliel Foundation and National People's Action, as well as Acorn, to solicit lending-discrimination cases.

At the time, NPA and Acorn were lobbying the Clinton administration to tighten enforcement of anti-redlining laws.

They also dispatched bus loads of goons trained by Obama to the doorsteps of bankers to demand more home loans for minorities. Acorn even crashed the lobby of Citibank's headquarters in New York and accused it of discriminating against blacks.

The pressure worked. In 1994, Clinton's top bank regulators signed a landmark anti-redlining policy that declared traditional mortgage underwriting standards racist and mandated banks apply easier lending rules for minorities.  Also that year, Attorney General Janet Reno and her aide Eric Holder filed a mortgage discrimination case against a Washington-area bank that forced it to target minority neighborhoods for subprime loans.

Reno and Holder also encouraged civil-rights lawyers like Obama to file local lending-bias cases against banks.

The next year, Obama led a class-action suit against Citibank on behalf of several Chicago minorities who claimed they were rejected for home loans because of the color of their skin. It was one of 11 such suits filed against the financial giant in Chicago and New York in the 1990s.

As first reported in Paul Sperry's "The Great American Bank Robbery," the plaintiffs' claim lacked merit. Factors other than race figured in the bank's decision to turn them down for loans.

His lead African-American client, Selma Buycks-Roberson, who was denied a loan due to bad credit and low income, got her mortgage only to default on it years later.  She got a foreclosure notice in 2008, according to The Daily Caller website, along with many of her Chicago neighbors.

By putting them on the hook for loans they couldn't pay, Obama did them no favors. Blacks have been hit hardest by foreclosures. But what does Obama care? The Caller reports he pocketed at least $23,000 from the Citibank case. Today, he blames the devastating wealth drain in black communities on subprime mortgages. He says "greedy," "predatory" lenders tricked poor minorities into paying higher fees and interest rates.

But Obama was for subprime loans before he was against them. "Subprime loans started off as a good idea," he said as those loans began to sour in 2007.

His closest economic advisers also promoted subprime lending. Several months earlier, Chicago pal Austan Goolsbee, who later became his top economist, sang the praises of subprime loans in a New York Times column. He argued they allowed poor blacks "access to mortgages." One of Obama's top bank regulators, Gary Gensler, once bragged that thanks to subprime mortgages, banks made home loans to minorities at "twice the rate" they made to other borrowers, according to "Bank Robbery." "A subprime loan is a good option when the alternative is no access to credit," he said years before the crisis. Obama hasn't learned from his mistakes. What President Obama has been pushing for, and moving toward, is more insidious: government control of the economy, while leaving ownership in private hands. That way, politicians get to call the shots but, when their bright ideas lead to disaster, they can always blame those who own businesses in the private sector.

Politically, it is heads-I-win when things go right, and tails-you-lose when things go wrong. This is far preferable, from Obama's point of view, since it gives him a variety of scapegoats for all his failed policies, without having to use President Bush as a scapegoat all the time.  Government ownership of the means of production means that politicians also own the consequences of their policies, and have to face responsibility when those consequences are disastrous — something that Barack Obama avoids like the plague.  Thus the Obama administration can arbitrarily force insurance companies to cover the children of their customers until the children are 26 years old. Obviously, this creates favorable publicity for President Obama. But if this and other government edicts cause insurance premiums to rise, then that is something that can be blamed on the "greed" of the insurance companies.

The same principle, or lack of principle, applies to many other privately owned businesses. ( BANKS, ENERGY COMPANIES etc.) It is a very successful political ploy that can be adapted to all sorts of situations.  What socialism, fascism and other ideologies of the left have in common is an assumption that some very wise people — like themselves — need to take decisions out of the hands of lesser people, like the rest of us, and impose those decisions by government fiat.  So long as we buy their heady rhetoric, we are selling our birthright of freedom.

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Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession. 

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks." 

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."

She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting." From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features. Lenders not subject to the CRA, such as subprime giant Countrywide Financial, still fell under its spell. Regulated by HUD, Countrywide and other lenders agreed to sign contracts with the government supporting such lending under threat of being brought under CRA rules. 

Bill Clinton’s Remarks on his National Homeownership Strategy  June 5, 1995 

It's 100 specific actions that address the practical needs of people who are trying to build their own personal version of the American dream, to help moderate income families who pay high rents but haven't been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership. Today, all across the country, I say to millions of young working couples who are just starting out: By the time your children are ready to start the first grade, we want you to be able to own your own home. 

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Additional Information It was bad enough the government pressured banks to rubberstamp home loans for folks with poor credit scores. Now there's a more dangerous push to attack the credit-scoring system itself.  The first shot across the bow was fired last week by the Washington Post. In a front-page story, it warned that "the country is headed toward a kind of financial segregation" from "long-lasting (credit) damage done to the black community."  The Post said civil-rights groups and federal regulators fear blacks will be denied credit for years to come due to subprime foreclosures that have left deep scars on their credit reports.  "Credit scores of black Americans have been systematically damaged, haunting their financial futures," said the Post, quoting the usual anti-bank suspects.  

These same Post sources demonized as racist the neutral credit-scoring system banks have used for half a century to measure risk in loans for homes, cars, college tuition and businesses. And they demanded the government review it for fairness, while forcing banks to "repair" the damaged credit of blacks.  What the Post left out of its one-sided story is key history explaining how blacks were put in such jeopardy.  Starting in the 1990s, Washington declared traditional bank rules for approving mortgages racist, after a deeply flawed federal study showed a greater share of blacks were rejected for home loans than whites.  To close the "mortgage gap," regulators demanded Fannie Mae and Freddie Mac, as well as primary lenders, do anything they could to get low-income, high-risk minority borrowers into home loans — including waiving down payments and offering them subprime mortgages and other fringe products.

Their affirmative-lending crusade backfired. African-Americans ended up holding a disproportionate share of subprime mortgages, which defaulted at alarming rates. If they had weak credit before the crisis, they have worse credit now.  The problem then, as now, has little, if anything, to do with racism. The higher loan rejection rates were due to lower credit scores, which are almost flawless in predicting a borrower's ability to pay back a loan.  Studies show blacks on average have the worst credit, even among the wealthiest, and default on loans at high rates. Another minority, Asians, typically have the best credit — better than whites — and the lowest default rates, even among the poorest. As a result, they tend to get the best deals on loans.  

Banks get consumer credit scores from San Rafael, Calif.-based Fair, Isaac and Co. FICO, as it's known, calculates them based on a color-blind formula that takes into account a consumer's history of paying bills and other credit factors that, again, have nothing to do with race.  Borrowers with FICO scores above 660 are viewed by lenders as posing a relatively low risk of defaulting on a loan. They typically qualify for traditional or prime loans, though the higher the score — 750 or higher is considered excellent credit — the better the loan terms.  Applicants with sub-660 scores historically wouldn't qualify for a mortgage without bringing a lot of cash or collateral to the table. But that changed in the 1990s and 2000s, when the government downgraded underwriting standards and mainstreamed subprime mortgages.  Sinfully, the Post article is part of a new, post-crisis crusade to show how the credit scoring, not just underwriting, process is allegedly biased against minorities. It agitates for the ultimate round in a reckless cycle of easier and easier credit.  I first warned of the anti-FICO assault last year in my book, "The Great American Bank Robbery." Efforts already are under way by the Obama administration to undermine this bedrock indicator of financial risk

But credit scores are not set in stone. Even foreclosed-on minorities can rebuild them in as little as two years if they stay current on their other bills.  Instead of attacking color-blind statistics vital to the health of our financial system, race zealots would better serve the minority community by pushing more effective programs to combat financial illiteracy — including educating borrowers about the importance of paying bills on time and maintaining good credit. How to budget, track spending, prioritize etc. • Sperry is author of the "Great American Bank Robbery: The Unauthorized Report about What Really Caused the Great Recession."

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Additional Information ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. 

''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''  Yup. The conservative American Enterprise Institute was accurately warning about this impending financial disaster back in 1999. If you don't believe me, then check out the New York Times archive. In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

           ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. Minorities' Home Ownership Booms Under Clinton but Still Lags Whites'

May 31, 1999|RONALD BROWNSTEIN | Ronald Brownstein's column appears in this space every Monday

It's one of the hidden success stories of the Clinton era. In the great housing boom of the 1990s, black and Latino homeownership has surged to the highest level ever recorded.   Since 1994, when the numbers really took off, the number of black and Latino homeowners has increased by 2 million

All of this suggests that Clinton's efforts to increase minority access to loans and capital also have spurred this decade's gains. Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat "redlining" by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. 

Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac.  In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. 

Most importantly, Fannie Mae has agreed to buy more loans with very low down payments--or with mortgage payments that represent an unusually high percentage of a buyer's income. That's made banks willing to lend to lower-income families they once might have rejected.  The real problem was that as Fannie's mortgage portfolio continued to balloon, top government officials became concerned about the potential consequences. In late 1999, then Treasury Secretary Lawrence Summers made a speech that included this sentence: "Debates about systemic risk should also now include government sponsored enterprises, which are large and growing rapidly." It was an incendiary remark. Then in March, Gary Gensler, Treasury's undersecretary for domestic finance, suggested in a speech that the Treasury should reconsider Fannie and Freddie's $4.5 billion line of credit. The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. The CRA funnels billions of investment dollars through groups that understand protest and political advocacy but not marketing or finance. This amateur delivery system for investment capital already shows signs that it may be going about its business unwisely. And a quiet change in CRA's mission—so that it no longer directs credit only to specific places, as Congress mandated, but also to low- and moderate-income home buyers, wherever they buy their property—greatly extends the area where these groups can cause damage. Marks, a Scarsdale native, NYU MBA, and former Federal Reserve employee, unabashedly calls himself a "bank terrorist"—his public relations spokesman laughingly refers to him as "the shark, the predator," and the NACA newspaper is named the Avenger. They're not kidding: bankers so fear the tactically brilliant Marks

an experiment with extraordinarily high risks. There is no surer way to destabilize a neighborhood than for its new generation of home buyers to lack the means to pay their mortgages—which is likely to be the case for a significant percentage of those granted a no-down-payment mortgage based on their low-income classification rather than their good credit history. Even if such buyers do not lose their homes, they are a group more likely to defer maintenance on their properties, creating the problems that lead to streets going bad and neighborhoods going downhill. Stable or increasing property values grow out of the efforts of many; one unpainted house, one sagging porch, one abandoned property is a threat to the work of dozens, because such signs of neglect discourage prospective buyers.

A no-down-payment policy reflects a belief that poor families should qualify for home ownership because they are poor, in contrast to the reality that some poor families are prepared to make the sacrifices necessary to own property, and some are not. Keeping their distance from those unable to save money is a crucial means by which upwardly mobile, self-sacrificing people establish and maintain the value of the homes they buy. If we empower those with bad habits, or those who have made bad decisions, to follow those with good habits to better neighborhoods—thanks to CRA's new emphasis on lending to low-income borrowers no matter where they buy their homes—those neighborhoods will not remain better for long.