Why do people lie so much? Are why are the liars mostly conservatives?
Fed Study Debunks Conservative Myth That Affordable Housing Policies Caused Subprime CrisisConservatives for years have pushed a flawed and largely-debunked narrative about the origins of the financial crisis. They claim that misguided government housing policies forced Fannie Mae, Freddie Mac (the GSE’s), and other financial institutions to take on unprecedented levels of risk, creating a bubble and bust in the subprime housing market that sparked financial catastrophe.
To test that theory — which New York Times columnist Joe Nocera dubbed the “Big Lie” — the Federal Reserve Bank of St. Louis recently investigated whether affordable housing policies had any influence on the price or proliferation of subprime mortgages in the mid-2000s. Spoiler alert — they didn’t:
We find no evidence that lenders increased subprime originations or altered pricing around the discrete eligibility cutoffs for the Government Sponsored Enterprises (GSEs) affordable housing goals or the Community Reinvestment Act. Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by the GSEs were not due to affordable housing mandates.The study analyzed loan- and neighborhood-level data in California and Florida. It found no statistical relationship between the two federal housing policies — which have been the central focus of conservative attacks in recent years — and the price or availability of subprime loans, even after controlling for the loan size, loan type, borrower characteristics, and other factors.
These findings shouldn’t come as a surprise. Indeed, CAP’s housing team has been making this point for years.
Here’s what really happened. During the housing bubble of the mid-2000s, over-leveraged shadow banks packaged risky subprime mortgage loans into securities and passed them along to consumers that were often unaware or misinformed of the underlying risks. It was the poor performance of these private-label securities — not those issued by Fannie and Freddie — that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission.
Since their inception, the Community Reinvestment Act and affordable housing goals have helped millions of creditworthy low-income and minority families access affordable mortgages. Most high-risk subprime loans were originated by non-bank lenders not subject to CRA, and the loans were usually issued to middle- and high-income borrowers that did not qualify for CRA. It’s also important to note that Fannie and Freddie did not securitize subprime mortgages.
To be sure, Fannie and Freddie did eventually take on riskier mortgage products — so-called “Alt-As” — in 2006 and 2007, but they lagged the private-label market significantly in an effort to win back market share. In the end, Fannie and Freddie failed primarily because they are entirely focused on residential mortgage finance, unlike most private investment firms. So the government-sponsored enterprises were hit especially hard by the historic drop in home prices starting in 2006.
The new Fed study adds to a mountain of evidence debunking the politically-convenient conservative myth that government housing policies — not Wall Street — caused the foreclosure crisis. As Congress and the Obama administration consider how to best wind down Fannie Mae and Freddie Mac in the coming months, facts should drive the debate, not a surreptitious campaign to rewrite the history.
http://thinkprogress.org/economy/2012/03/28/453978/fed-study-affordable-housing-myth/