Kevin Villani's attack ("Yes, Subprime Crisis Was Government's Fault," Aug. 22) on the Community Reinvestment Act and Fannie Mae and Freddie Mac's affordable housing goals is the latest in a long line of fact-free "analyses" that has all the trappings of a conspiracy theory, including the most relevant: it's not true.
Villani rehashes a convoluted meta-narrative developed in recent years in which "U.S. housing policy" caused the subprime crisis, with CRA and the affordable housing goals as "enablers." This myth has been debunked by Republican appointees to bank regulatory agencies, the bipartisan Financial Crisis Inquiry Commission, Federal Reserve economists, and bank CEOs. The most plausible explanation for the crisis is the simplest: unbelievable levels of greed and stupidity throughout the financial marketplace, including by GSE executives.
CRA lending had, in fact, a minimal role in the housing boom. The boom in loans that drove the foreclosure crisis occurred from 2001-2006, a period in which CRA's influence was at an all-time low. During the subprime boom, only 6% of all higher-priced mortgages were made by banks operating in their CRA assessment areas, according to the Federal Reserve. The sad reality is that an unregulated shadow financial system pushed explosive subprime loans.
The goals were distorted by Fannie Mae and Freddie Mac for their own ends. Multiple federal reports have disclosed how the GSEs manipulated their affordable housing goals to maximize their profits. Fannie Mae executives bragged about writing "the housing goals…in such a way that they had no teeth," according to the 2010 book All the Devils Are Here.
In addition, the Washington Post reported in a 2008 article that HUD, the companies' goals regulator in the early 2000s, allowed the GSEs to count triple-A securities backed by higher-cost subprime and alt-A loans as meeting their "affordable housing" goals.
Fannie Mae and Freddie Mac gamed their "affordable housing" mandate brilliantly. I had to laugh when I read Villani's contention that "politically anointed CEOs were installed who were more inclined to meet housing goals." No one involved in housing issues in Washington over the past 20 years thinks that Congress made the GSEs do anything.
These are the facts. Villani's account is simply counterfactual, an unfortunate trend in our nation's discourse these days.
Judy Kennedy is the President and CEO of the National Association of Affordable Housing Lenders.
Kevin Villani had no attack on CRA. He was very simply stating the history of how the Federal Government through regulation (such as identified above) FORCED the lending community to make loans they historically would not make.
Yes, the Federal Government instructed Wall Street to get creative in opening doors to the underserved (poor credit & no money). Once the rating agencies were told by Federal Government to provide twisted ratings to the creative fundings, the Federal Regulators threatened banks with vioaltion of ECOA as these loans for the underserved were now rated worthy of bank's reguated risk managment.
Kevin Villani had the courage to stand up to cover-up by the Federal Government for their push through regulators that created the Housing & Financial Crisis.