“In June 2008, just before the crisis fully gripped the nation, there would be a moment of recognition that HUD’s policies were at fault, when the fact that many families would lose their homes was connected to the affordable-housing goals…

…An article in the Washington Post captured the moment:

“In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of the risky lending….Eager to put more low-income and minority families into their homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to those borrowers, HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Today 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower income and minority homebuyers….those who were supposed to benefit from HUD’s actions….are falling into default at a rate at least three times that of other borrowers.”

Several former HUD officials were cited in the article to the effect that they had made a mistake or that things had not worked out as they’d hoped. But this recognition was fleeting. After the failure of Lehman Brothers in September 2008 and the resulting financial crisis, HUD’s role in weakening of underwriting standards, the loss of homes, and ultimately the financial crisis, disappeared from the Washington consensus and the mainstream media. It was replaced by a narrative that insufficiently regulated commercial banks, investment banks, shadow banks, rating agencies, mortgage brokers, and a myriad other private-sector actors were the responsible parties. This later analysis protected the government and absolved both political parties of responsibility for a financial disaster. But the stubborn fact remains that the government’s housing policies added enormous numbers of NTMs (nontraditional mortgages) to the nation’s mortgage market, so many that it seem likely the financial crisis would never have occurred but for this serious policy error.”, Peter J. Wallison, “Hidden in Plain Sight, Chapter 5, HUD’s Central Role”

Posted on April 10, 2015, in Postings. Bookmark the permalink. Leave a comment.

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