This Has The Look Of A Zombie Lie

The right-wing narrative has been set - the federal government forced the lenders to give houses to black people and Hispanics, they couldn't pay back, "Fannie and Freddie went wild," and they brought the whole system down.

It should be noted that we've had housing downturns before in this country, and none of them caused the financial markets to collapse (the Depression was more about monetary policy, stock speculation, and trade). The extreme leveraging (and the exemptions given to investment firms to double their leveraging limit) and bundling of exotic securities, as well as authorizing awful loans, is the new element here, and both the CRA and the GSEs have nothing to do with that.

Let's clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

• Did the GSEs require banks to not check credit scores? Assets? Income?

• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

• What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?

The answer to all of the above questions is no, none, and nothing at all.

Honestly, most of these charlatans on the right probably don't know what Fannie (FNMA) and Freddie (FHLMC) stand for. They just want something to yell about. And the GSEs sound as good as anything else.

I'm glad that activists are fighting back against this not-too-subtle racism. It won't be successful, but at least they're putting another narrative out there.

The head of the National Urban League is calling on Treasury Secretary Henry M. Paulson Jr. to refute statements by conservative politicians and pundits that subprime mortgages provided to minorities led to the financial crisis and a $700 billion federal rescue of Wall Street.

In a strongly worded letter to Paulson this week, Marc H. Morial said Paulson has "an obligation to correct the misinformation that is spread concerning the root cause of the current financial crisis."

Morial, a former mayor of New Orleans, said in an interview yesterday that the effort "to pin the subprime crisis on African Americans and Latinos" is a "big lie."

"It's an effort to shift the climate away from deregulation and the lack of oversight," he said. "The numbers are becoming clearer each day that a large number of people who ended up with a subprime loan could have qualified for a prime loan. That's the abuse that's inherent here."

I think that ultimately, reasonable people would agree on that as the cause of the crisis. Those who want to believe something else are being fed an alternate take. It's disgusting.