Category Archives: Affirmative Action

Updated: Loosening Lending Standards: The Real Scandal Of The Mortgage Crisis

Affirmative Action, Economy, Government, Hillary Clinton, Law, Multiculturalism, Private Property, Socialism, The State

THE REAL SCANDAL
By STAN LIEBOWITZ, New York Post

February 5, 2008 — PERHAPS the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards – done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.

At the crisis’ core are loans that were made with virtually nonexistent underwriting standards -no verification of income or assets; little consideration of the applicant’s ability to make payments; no down payment.

Most people instinctively understand that such loans are likely to be unsound. But how did the heavily-regulated banking industry end up able to engage in such foolishness?

From the current hand-wringing, you’d think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards – at the behest of community groups and “progressive” political forces.

In the 1980s, groups such as the activists at ACORN began pushing charges of “redlining” – claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.

In fact, minority mortgage applications were rejected more frequently than other applications – but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.

Yet a “landmark” 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.

That study was tremendously flawed – a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.

Yet the political agenda triumphed – with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.

No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: “discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.”

Some of these “outdated” criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.

Sound crazy? You bet. Those “outdated” standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.

Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department.

Flexible lending programs expanded even though they had higher default rates than loans with traditional standards. On the Web, you can still find CRA loans available via ACORN with “100 percent financing . . . no credit scores . . . undocumented income . . . even if you don’t report it on your tax returns.” Credit counseling is required, of course.

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed “the most flexible underwriting criteria permitted.” That lender’s $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

Who was that virtuous lender? Why – Countrywide, the nation’s largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy.

In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.” He’s not bragging now.

For years, rising house prices hid the default problems since quick refinances were possible. But now that house prices have stopped rising, we can clearly see the damage caused by relaxed lending standards.

This damage was quite predictable: “After the warm and fuzzy glow of ‘flexible underwriting standards’ has worn off, we may discover that they are nothing more than standards that lead to bad loans . . . these policies will have done a disservice to their putative beneficiaries if . . . they are dispossessed from their homes.” I wrote that, with Ted Day, in a 1998 academic article.

Sadly, we were spitting into the wind.

These days, everyone claims to favor strong lending standards. What about all those self-righteous newspapers, politicians and regulators who were intent on loosening lending standards?

As you might expect, they are now self-righteously blaming those, such as Countrywide, who did what they were told

Stan Liebowitz is the Ashbel Smith professor of Economics in the Business School at the University of Texas at Dallas

Related: Hillary, as I’ve noted, will help “Level The Lending Industry.” Barrack, no doubt, will be behind her all the way.

Updated: Here’s the Liebowitz-Day study, “Mortgage lending to Minorities: Where’s the Bias?” The idea that all groups must own homes, or be represented in the professions proportionate to their numbers in the general population, is a political construct. Science usually has to be manipulated and massaged to support such politically driven constructs.

Notice too that the study is not new. It is, rather, kept under wraps by the familiar culprits who prefer to speak of—and act upon—corrupt concepts such as “endemic racism” and the need to step in and correct so-called systemic wrongs.

Bennett, Dowd, And The Dames From Yale

Affirmative Action, Feminism, Gender, Media, Race, The Zeitgeist

The good news first. Following “careful” capitalistic considerations, The New York Times has curtailed accessibility to its mundane columnists. If you want to read Maureen Dowd, you must sign up and pay. Yippee. About this woman’s simpering, cutesy prose the potent (Camille) Paglia said this: “Maureen Dowd—that catty, third-rate, wannabe sorority queen. She’s such an empty vessel. One pleasure of reading The New York Times online is that I never have to see anything written by Maureen Dowd! I ignore her hypertext like spam for penis extenders.” Now even if Paglia happens to click on the Dowd hypertext, it goes nowhere, unless one is willing to pay for the flaccid fluff.
Speaking of the best of distaff America, the newspaper of record reported that

“Many women at the nation’s most elite colleges say they have already decided that they will put aside their careers in favor of raising children. Though some of these students are not planning to have children and some hope to have a family and work full time, many others… say they will happily play a traditional female role, with motherhood their main commitment.”

Girls at Harvard, Yale, and Princeton interviewed for the piece said they expected to enjoy perhaps a 10-year career, and then quit to tend their tots. Some would go back to work part time only; others not at all. The data.s reliability has been questioned, although the emerging trend is supported by “several surveys of Yale alumni and Harvard Business School graduates,” which show “the majority of women were not employed full-time 10 to 20 years after graduation.”
Parroting the individualist-feminist bromidic line, Cathy Young begs us not to ask women “to sacrifice their personal aspirations to a feminist vision of parity.” That would be “a peculiar kind of liberation.” Young pumps out banalities, but fails to get to the crux: As talented as these women are, for every one accepted into the Ivy League, an equally—or better—qualified man is rejected. That’s the way equal-opportunity admissions operate. The rejected men need the education because they’ll be working a lifetime to support women who can choose not to. Ever wonder why doctors are in short supply? Half the students admitted to medical schools are women. When kids come along, women give up the practice. Thereafter, they resume work on a part-time—or on some other highly personalized—basis. This and not discrimination is why men are frequently paid more: they’re more likely to have maintained an uninterrupted continuum of employment. Naturally, the experts at Gender Studies blame society for this “aberrant” traditionalism. They say there haven’t been efficient social changes to support the endless opportunities given to women.

“Society” is code for the pale patriarchy. That’s you, Bill Bennett. Poor Bill, he entered the lion’s den of demographics! Race baiters duly alighted on him for condemning utilitarian arguments for abortion. On his “Morning in America” radio program Bennett offered this reductio ad absurdum:

“If you wanted to reduce crime, you could—if that were your sole purpose—you could abort every black baby in this country and your crime rate would go down. That would be an impossibly ridiculous and morally reprehensible thing to do, but your crime rate would go down.”

In response, the cultural cognoscenti hastened to label him a racist. Nobody was prepared to say why Bennett is a racist, though. Was it because he denounced as deplorable the idea of aborting black babies, or because his argument was premised on an unspoken truth about “the color of crime”? Instead, those who monopolize discourse in this country quickly stipulated the terms of debate. “It’s about time we discuss race honestly,” intoned the consensus keepers. But stick to the Three P’s—patriarchy, poverty, and powerlessness. Crime can be discussed as long as it is framed in bogus root-causes terms. Thus even the intrepid Bay Buchanan backed down when Donna Brazile, her CNN boxing buddy, insisted that if blacks were not so horribly and eternally disenfranchised, they would not dominate the violent-crime franchise. (What will it take, pray tell, to get whites to excel in basketball and in the 100-meter dash?)
So far the battered Bennett is holding up (Bush jumped into the ring too). One doesn’t, however, need to be a prophet to foresee a retraction in the offing. Spare yourself the burlesque and beef up your knowledge of the facts.