Sunday, October 14, 2012

Reading on the Internet

One of the irritations of the Internet is that articles get reproduced over and over again, without reference to the underlying information.  This is happening right now with a piece on the ways in which the Clinton Administration promoted the housing bubble.  As is common on the right, they blame Fannie and Freddie, the Community Reinvestment Act and feckless community groups.  But if you go to the original piece, it doesn't say that at all.   In fact, it's quite good.

The Clinton Administration (and Housing and Urban Development, in particular) did play a part, in that they wanted to promote homeownership as an anti-poverty program.  In doing so they encouraged Fannie and Freddie to count some of the rather more predatory loans as part of their low- and moderate-income homeownership tallies.

But, and it's a big but, the loans were being made by feckless banks, mortgage brokers and so on.  Fannie and Freddie were just buying them, and they at least had some standards that kept them away from the worst of the worst.  Second, many community groups screamed and yelled, claiming--rightly, as it turned out--that these loans were predatory and were going to land low- and moderate-income homeowners in a heap of pain.  In particular, prepayment penalties locked homebuyers into these bad loans, so even if the house rose in value, they couldn't refinance out of them.

And the redlining that the Community Reinvestment Act was supposed to stop had long since been superseded by the realization that poor people were a profit center.  Instead of refusing to lend to poorer people, they became more than willing to lend, for a price, a high price.  An exorbitant price.  A price that used to be impossible when we had laws against usury.  It's as though the world around the Community Reinvestment Act hadn't changed since 1978.  But then, for some of these writers, the world hasn't changed since 1783.

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