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Fredric is a web developer based in Chicago who hopes to one day start a foundation to support young, Black males in programming and computer science.

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Correction: The Mortgage Crisis Was Not a Minority Problem

October 8th, 2008 • Related • Filed Under

Fear has always been the Achilles heel of human compassion. We like to tell ourselves that we’ll give to the less fortunate during the holiday season, support and stand-up for what is right, and lend our neighbors a hand if they need it when asked, but many times, reality never plays out that way. The fear of not having enough time and money for yourself, the fear of what the backlash may be, and the fear of a grumpy and crazy neighbor excuse our apathy.

The times of this day are no different, only lending itself to an international stage because of the severity of crisis our world economy is in.

New York Stock Exchange, Wall street
Creative Commons License credit: FrancoisRoche
The Mortgage Crisis Was Not a Minority Problem

What really perplexes me, however, in moments where it logically makes more sense to stop squabbling and work together, is the constant finger-pointing of what got us here.

Take, for instance, the rising misconception that the affirmative action policies of the Clinton administration are the result of our current mortgage meltdown because Fannie and Freddie Mac were mandated to include minority lending in majority of their loans. Here is Ann Coulter’s (rolls eyes) approach:

This crisis was caused by political correctness being forced on the mortgage lending industry in the Clinton era.

Before the Democrats’ affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress “mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains.”

Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton’s secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.

Instead of looking at “outdated criteria,” such as the mortgage applicant’s credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named “Caylee.”

Threatening lawsuits, Clinton’s Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn’t a joke — it’s a fact.

Now, the I told you so, short-sighted reader may think her argument has some merit. I mean, doesn’t it make sense that those with no money shouldn’t get loans?

Let’s take a closer look, however, specifically, numbers and dates…because that’s all I work in.

1.) Coulter is posturing her position based on the Community Reinvestment Act (CRA) of 1977 that aimed to eliminate redlining and discrimination in lending practices. The argument is that the CRA, in an attempt to end discrimination, mandated that communities of color were no longer required to provide all of the standard mortgage documents such as verification of income, proof of employment, credit history, or even provide a down payment.

2.) This act was put into law three decades before this debacle.

3.) 50% of subprime loans were made by finance companies that do not have to comply with CRA, while another 30% were made by savings and thrifts who could voluntarily include the CRA rating.

4.) According to data of the Home Disclosure Mortgage Act from 2005 - 2007, 58% of higher-cost loans were made by White borrowers in contrast to 18% of minority borrowers.

Outside of the numbers, however, is the more important fact that we are all in this together. The tactics to divide our country in times of uncertainty is a dying principle that has never served our interests, as Obama alluded to in yesterday’s debate regarding the days after 9/11. NYTimes op-ed columnist Thomas Friedman summoned it up best:

You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.

We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.

I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don’t deserve it. Otherwise, you’re saying: I’m going to hold my breath until that Wall Street fat cat turns blue. But he’s not going to turn blue; you are, or we all are. We have to get this right.

Updated: Apparently, Newsweek agrees as well.

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