Posts Tagged ‘subprime loans’

Blaming Fannie & Freddie: Taking The Easy Way Out

“Will Obama Slay The Fannie and Freddie Beast?”  is the headline of one story appearing in Newsweek today. Basically, it appears that instead of doing anything to the major players that actually caused the economy to collapse, you know, those fat cat Wall Street CEOs with their stupid, blow-up-the-housing market schemes, once again the easy target gets the blame: poor people who shouldn’t have been able to buy homes in the first place.

The Obama administration appears to be suggesting — very subtly — that homeownership isn’t a God-given right. That the American dream has morphed into an American entitlement. That millions of people who should not have been homeowners in the first place ended up paralyzed by unsustainable debt as a result

The American Dream is indeed powerful and one of its major tenets is owning your own home. Why is that such a tenet, though? Because for years, owning a home was the only asset any except the top five percent of Americans could claim.  Having said that, homeownership has never been an entitlement and the idea that giving poorer Americans the ability to purchase homes led to this crisis is completely incorrect. It is par for the course, however, as it is easy to blame everything on those least able to represent themselves. Poor and working class Americans  don’t have a powerful lobby like Wall Street does.

The fact is that the financial crisis was NOT caused by making loans to poor people to buy homes. It was NOT caused by the CRA or Fannie and Freddie. It was caused by greedy Wall Street bankers knowingly creating financial products that were doomed to fail from the very beginning.  The Center For Responsible Lending and others have done studies which have  revealed that risky borrowers weren’t the problem;  it was the terms of the loans themselves .  In fact, the majority of people who received “subprime” loans could have qualified for conventional mortgages, with a much lower default risk.  Furthermore, most of the loans made were not loans to first time homebuyers: the majority were refinances and loans made to homeowners moving from one house to another.  

It is deeply saddening to me that the Obama Administration appears to be buying into the Republican talking points, given to them straight from Wall Street, that the cause of the crisis was government intervention to try and help people get a leg up when true cause was the absence  of government in making sure that the mortgage products that were being peddled to the American people were safe and sustainable.

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