On Special Report, Fred Barnes and Charles Krauthammer echoed other conservatives in claiming that the Community Reinvestment Act and efforts to expand affordable housing are at least in part to blame for the home foreclosure crisis. But as experts have noted, the CRA does not govern the vast majority of subprime lenders.
Sounding a common conservative refrain during the December 22 edition of Fox News' Special Report, Fox News contributors Fred Barnes and Charles Krauthammer each claimed that the Community Reinvestment Act and efforts to expand affordable housing to minorities and low income people are at least in part to blame for the home foreclosure crisis. However, experts have said that approximately 80 percent of subprime loans were offered by financial institutions that are not subject to the CRA, which applies only to depository institutions like banks and savings and loans, and also pointed out that lenders subject to the CRA face stricter regulations than do other lenders.
During the Special Report panel discussion, Barnes said of a December 20 New York Times article about the Bush administration's role in the subprime lending crisis: “Look, the problem with the story is it blames everything on President Bush and pretends like nothing happened before he became president. And, you know, you can go back to the Community Reinvestment Act under President Carter and all the things that President Clinton did and what Fannie Mae did announcing in 1999 that they would buy up loans -- home loans that were made by banks to people who hadn't qualified before.” Later in the discussion, Krauthammer said: “The only surprise I had in reading [the article] is why it took the Times so long to get around to blaming the entire collapse on George Bush. ... Look, the truth is that there were two realities here. One is that we set as a national goal 30 years ago expanding homeownership, especially for low-income and minorities.”
However, as Media Matters for America has repeatedly noted, a study released in early 2008 by a law firm specializing in CRA compliance estimated that in the 15 most populous metropolitan areas, more than 84 percent of subprime loans in 2006 were made by financial institutions not governed by the CRA. Similarly, in February 13 testimony before the House Financial Services Committee, Michigan law professor Michael Barr said the following:
Despite the fact that CRA appears to have increased bank and thrift lending in low- and moderate-income communities, such institutions are not the only ones operating in these areas. In fact, with new and lower-cost sources of funding available from the secondary market through securitization, and with advances in financial technology, subprime lending exploded in the late 1990s, reaching over $600 billion and 20% of all originations by 2005. More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts. Although reasonable people can disagree about how to interpret the evidence, my own judgment is that the worst and most widespread abuses occurred in the institutions with the least federal oversight.
Barr pointed out in his testimony that depository institutions, which are subject to the CRA, face far more scrutiny than other lenders, stating: “Banks and thrifts are subject to comprehensive federal regulation and supervision; their affiliates far less so; and independent mortgage companies, not at all.” Additionally, in a March 31 speech, Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, criticized efforts to blame CRA lending for weaknesses in the mortgage market and stated that “studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households” [emphasis added].
In a November 19 speech in Baltimore, U.S. Comptroller of the Currency John C. Dugan also criticized efforts to blame CRA for the mortgage crisis, saying: “CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace.” Dugan added, “Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA.”
From the December 22 edition of Fox News' Special Report with Brit Hume:
BRIT HUME (host): What is this story that so agitated the White House that not only did it send a Sunday response in the form of a statement but also sent, as you saw there, Ed Gillespie, the president's political adviser, out on the North Lawn to talk about it again today.
Well, the story says in part, quote, “He,” speaking of President Bush, “his housing policies and hands-off experience to regulation encouraged lax lending standards. He pushed hard to expand home ownership, especially among minorities in an initiative that dovetailed with his ambition to expand the Republican tent and with the business interests of some of his biggest donors.”
Well, that statement is -- is correct. So what all -- what's all the grumbling about? Some thoughts on this now from Fred Barnes, executive editor of The Weekly Standard; Nina Easton, Washington bureau chief of Fortune magazine; and the syndicated columnist Charles Krauthammer -- Fox News contributors all.
Fred, what's the -- the quote I read, which lies at the heart of what the Times claimed, is, standing by itself, correct.
BARNES: Well --
HUME: So what's the fuss about?
BARNES: -- it is. But it is -- correct, but I'll mention that program and the president's efforts to increase homeownership.
Look, the problem with the story is it blames everything on President Bush and pretends like nothing happened before he became president. And, you know, you can go back to the Community Reinvestment Act under President Carter and all the things that President Clinton did and what Fannie Mae did announcing in 1999 that they would buy up loans -- home loans that were made by banks to people who hadn't qualified before.
They didn't have much -- they weren't going to be able to put much down and couldn't provide much proof that they were going to be able to pay off their home loan and so on.
And then you go to 2003 and four and five, and, as Ed Gillespie says, the Bush administration was pushing hard for a tough crackdown on the practices of Fannie Mae and Freddie Mac and so on.
I mean -- just one of the most breathtakingly one-sided, narrow story with blinders on that I have ever seen before that can only be motivated by an effort to get President Bush. I mean, you wouldn't write that piece otherwise.
Look, it's not that the Bush administration bears none of the blame. They do bear some. But -- but this story is utterly ridiculous.
When I was writing a book about President Bush -- oh, when was it -- a couple of years ago, and I wrote a chapter on the ownership society. And so I looked into the homeownership program that the Bush administration had -- it was puny. It wasn't much at all. I barely mentioned it in my chapter on -- on the ownership society.
And one of these pieces I read today said that that was the core of the ownership society idea of the Bush administration. No, it wasn't. You know, Social Security investment accounts and so many other things were. It wasn't.
So the problem with this story is it blames a person who is only partly, and smaller than other people, to blame, and mentions no one else.
EASTON: Well, as somebody who is not part of Fred's sort of media blame club, usually, I have to say I was flabbergasted when I read this story. Flabbergasted.
I mean, there are three sections to blame for this -- this crisis we're in. You can blame Alan Greenspan and the Federal Reserve easy money supply. You can blame this whole risky slice, dice, and pass mortgage packages up the food chain, so no one has responsibility for it. And, frankly, regulators should have been looking at. You can blame that.
And you can blame affordable housing policies. You cannot write a story about affordable housing policies and blame it on George Bush instead of the Democrats. I mean, it's just -- it's outrageous.
You cannot go through -- as Fred said, I mean, the Democrats were so tied to Fannie Mae and Freddie Mac. In 1999, the Clinton administration pressured Fannie Mae to get into this more risky business of affordable housing, meaning you give loans to people who can't afford it. You take the normal credit, normal lending standards off the table. People don't have to have the required income and so on, so that you can expand affordable housing.
And in -- in The New York Times article at the time, it said this is gonna lead -- this could lead to a savings and loan crisis. Every Bush administration official I've interviewed in the past couple years has always pointed to Fannie Mae and Freddie Mac being out of control, we need to rein them in, and they couldn't get the Democrats to do it.
KRAUTHAMMER: The only surprise I had in reading this is why it took the Times so long to get around to blaming the entire collapse on George Bush. After all, it blames everything else on Bush. I mean, from, you know, the droughts in Kansas to Hurricane Katrina.
Look, the truth is that there were two realities here. One is that we set as a national goal 30 years ago expanding homeownership, especially for low-income and minorities. And it was accelerated in the Clinton administration.
And the Bush administration, Bush, who defined his ideology as compassionate, continued it.
And the other truth is that in his administration, he continued it, but he did try to regulate the out-of-control Fannie and Freddie, who were really at the root of this explosion.
We had Franklin Raines in 1999, the CEO at the time of Fannie, boasting that they had lowered the down-payment requirements and were now gonna lower the interest rates paid by these lower-income, subprime people, which was obviously a huge risk. And it was ignored, and it led, ultimately, to the calamity that we're in today.
HUME: Folks, it seems that this is not your father's New York Times.
Up next, the income incoming vice president has big changes in mind for the office he will inherit in a few weeks, and that's not sitting too well with the current one. All-stars on rising tension, next.
UPDATE: In a written response to Sen. Robert Menendez (D-NJ), Federal Reserve chairman Ben Bernanke stated that the CRA is not in any way to blame for the subprime lending crisis, writing: “Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties.”