...the real cause of the housing mess is a classic bubble in the housing market, the bursting of which has hammered lenders as well as borrowers. If the housing market had continued to rise, we never would have heard complaints about subprime loans. In fact, Washington had long encouraged these sorts of loans through the Community Reinvestment Act (CRA) as a way to make marginal — largely minority — borrowers into homeowners.
What's the difference between socially responsible loans extending the American dream to deserving people with poor credit histories and predatory lending? It's whether those loans work out or not. If they don't, lenders suddenly become "predatory." Strangely, the more "predatory" they become, the more likely they are to go out of business under the weight of worthless mortgages.
Consider Countrywide Financial, a leading purveyor of subprime loans rocked by the housing downturn. A few years ago, everyone was covering Countrywide in laurels. In 2000, the Spanish-language newspaper La Opinion named Countrywide "Corporation of the Year" for "outstanding work in the Latino community"; in 2004, the National Housing Conference lauded Countrywide's CEO for his "longstanding commitment to reducing the barriers to homeownership"; in 2005, the Lending Industry Diversity Conference gave Countrywide its "Best in Minority Lending Award."
Though Countrywide wasn't technically covered by the CRA, it complied with the act. The CRA forced lenders to lower their standards to get mortgages to more minorities and permitted the "securitization" — the sale on secondary markets — of subprime loans. Hillary Clinton complains, "Subprime loans are five times more likely in predominantly black neighborhoods." As if that weren't the entire point.
As long as the market continued going up, subprime loans were good deals. People got an appreciating asset without spending much on it. If they got in trouble, they could sell or easily refinance.
Friday, April 04, 2008
What is "predatory lending"?
It is Affirmative Action Lending! Something the Affirmative Action liberals won't admit: