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This is the second installment of a Monday series excerpting the chapter on political implications from Thomas Sowell's latest book, "The Housing Boom and Bust."
IBD Exclusive Series:Thomas Sowell on The Politics of the Housing Boom
In recent times, government officials have increasingly pressured banks and other lenders to lend to people whom they would not lend to otherwise.
One of the first federal government efforts to change the process of mortgage lending by private financial institutions was the Community Reinvestment Act of 1977. Like many government policies or programs, it began small and grew in scope and severity over the years.
The Community Reinvestment Act directed "each appropriate federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions."
These almost innocuous words nevertheless contain the implicit assumption that government officials are qualified to tell lenders to whom they should lend money entrusted to them by depositors or investors.
Although the Community Reinvestment Act had no major immediate impact, over the years its underlying assumptions and provisions provided the basis for ever more insistent pressure on lenders from a variety of government officials and agencies to lend to those whom politicians and bureaucrats wanted them to lend to, rather than to those whom lenders would have chosen to lend to on the basis of the lenders' own experience and expertise.
These pressures began to build in the 1990s and increased exponentially thereafter. Studies in the early 1990s, showing different mortgage-loan approval rates for blacks and whites, set off media sensations and denunciations, leading to both congressional and White House pressures on agencies regulating banks to impose new lending rules, and to monitor statistics on the loan approval rates by race, by community and by income, with penalties on banks and other lenders for failing to meet politically-imposed norms or quotas.
These stepped-up pressures began during the George H.W. Bush administration and escalated during the Clinton administration, when Attorney General Janet Reno threatened legal action against lenders whose racial statistics raised her suspicions.
It would be too much of a detour at this point to go into the details of these claims of racial discrimination by mortgage lenders. However, even at this point, the idea that lenders would be offended by receiving monthly mortgage payment checks in the mail from blacks should at least give us pause to assess whether or not it seems plausible — especially since a substantial majority of both blacks and whites had their mortgage-loan applications approved.
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Posted By: Former Democrat(10) on 11/20/2009 | 10:12 PM ET
ACORN is not mentioned although "community activists" are noted. ACORN played a big part in forcing banks to loan to unqualified applicants. They picketed banks and even homes of bank executives crying "Racism." ACORN played a major role in much of the mischief that plagues us today.
Posted By: IdiotSavant(325) on 11/20/2009 | 8:57 PM ET
One thing you did get right is that the democrats under Clinton played the greatest part in causing the housing/mortgage bubble that caused the problems we are just now getting through and the regulations and healthcare reform being put in place by this democratic administration is only going to create another bubble for the republican party to repair once they are back in office. What this country needs now is another leader like we had in President Reagan.
Posted By: for parity(10) on 11/20/2009 | 8:52 PM ET
Well respectively, Mr. Sowell, I don't know how you failed to mention this one little regulation (complements of Clinton's HUD Secretary Andrew Cuomo) added much fuel to the fire - and did it right smack in the middle of the dot.com crash and the begining of the recession: Oct. 2000 - HUD ANNOUNCES NEW REGULATIONS TO PROVIDE $2.4 TRILLION IN MORTGAGES FOR AFFORDABLE HOUSING FOR 28.1 MILLION FAMILIES - http://www.hud.gov/library/bookshelf12/pressrel/pr00-317.html
Posted By: IdiotSavant(325) on 11/20/2009 | 8:50 PM ET
A mandate to increase lending to low/moderate income individuals was not a call for "no-doc" loans. It was a call to allow responsible low/moderate income individuals access to mortgage loans by providing a lower "Loan to Income" (LTI) ratio for those individuals who otherwise would not qualify. Most of those loans went to investors and speculators using the "no-doc" loans to get around their own inability to qualify for reasons other than LTI. Racism against blacks come in all colors Mr Sowell.
Posted By: ajmc(215) on 11/20/2009 | 7:40 PM ET
When you consider the mustard seed of the CRA, how frightening is it to think of how either Stealth-Care or Knee-Cap & Tax will mushroom into money-sucking nuclear clouds, extracting the life out of the lives of U. S. taxpayers? Not only do we need to be concerned with rationing, but quotas as well! Now is the time to demand genuine leadership from those in Congress who understand we are the United States of America, not just a patchwork of lobbyists, special interest groups and idiotlogues!
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