Monday, October 13, 2008

Can We Work on the Crisis and Stop the Scapegoating?

Once again, it is being proved that the subprime mortgage meltdown/crisis/disaster (whatever is appropriate this week), cannot be attributed to low-income home buyers.

This explanation has been foisted on the public for several weeks now, by conservative talk show hosts, bloggers and just about everyone who has an ax to grind when they think public funds are unwisely invested in human capital.

"As the economy worsens and Election Day approaches," the Dallas Morning News reports, "a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

"Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

"Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis."

What about the Community Reinvestment Act, that has also been the focus of a great deal of 'blame the poor' reaction to what is now world wide economic distress?

"...only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt nonbank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

"These private nonbank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.
"In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.
"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

I have been chided by a few people for essentially picking a fight with those who appear to have an animus towards the poor. I have also been told, in effect, that I am antagonizing those who might otherwise be willing to help the very ones I care about.

The problem I have is that most of us tend to forget, that we are where we are because we have received some measure of help from the government. We, and our children, and our grand children, benefit from the rules which govern a 40 hour work week, child labor laws, Civil Rights and Voting Rights legislation, unemployment insurance, Medicaid and Medicare.

When it comes to homeownership, very few of us saved up the total cost of a new house. We may have worked and saved, but we were helped by government intervention in the form of regulation which set the conditions under which our loans would be reviewed and accepted or rejected. Tax money was used, to make effective oversight possible.

Low-income homeowners had some level of government intervention, but they weren't 'given' anything. They still had to qualify - and I know for a fact, that many of them had to jump through a great many more hoops than I did to qualify for a house.

So, if I seem a little testy when it comes to this issue, its because I grow weary when lately, whenever our country experiences crisis, it has to be the fault of people who don't have much money.

An article in Slate Magazine also refutes the notion that this crisis was caused by lending money to low-income home buyers:

"...lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent."

By the way, the Nehemiah Homes project, located is located in Brooklyn, New, York. It was started by an organization called East Brooklyn Congregations and is a part of a network of 'leftist' organizations: the Industrial Areas Foundation founded by Saul Alinsky!

There were obviously some low-income borrowers who were taken advantage of by unscrupulous brokers and lenders. Just as some middle class homebuyers were. But, if our country is really going to heed this wake-up call that most of us concede this crisis constitutes, we are going to have to resist the urge to look for scapegoats, and hold those who are really responsible accountable.

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