"Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades," writes Taki Mag's Steve Sailor. "Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of home ownership by handing out more mortgages to minorities."
We recently touched on how the Clinton administration's modification to the Community Reinvestment Act created the regulations that forced lenders to make subprime loans available to borrowers who simply did not have credit or the means by which to pay the loans back, such as illegal immigrants. It is this type of multiculturalistic social engineering that has many experts labelling the current economic crisis, the Diversity Recession.
While Wall Street is certainly responsible for its fair share of the blame, Steve Sailor writes that, "More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness."
Democrats and some Republicans in Washington became so obsessed with forcing diversity that they neglected to consider sound economic principles when creating or modifying lending regulations, such as the ability for the borrower to pay back the loan. This ideological crusade laid the ground work for the largest boom in home ownership in more than 40 years. From the period of 1960 to 1995 home ownership levels remained relatively the same at about 64%. After the changes to the Community Reinvestment Act (CRA) went into effect, home ownership levels jumped to 69%.
In 1999 the Boston Federal Reserve wrote, "[D]iscrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." This "outdated" criteria included the size of the mortgage payment relative to income, credit history, savings history, and income verification.
The fallout from the changes to the CRA under the Clinton administration and pressing by the Fed to remove standards by which credit worthiness is judged were further compounded when G.W. Bush ordered the Federal Housing Authority (FHA) to remove down payment requirements, saying in his 2004 address, "To build an ownership society, we’ll help even more Americans to buy homes. Some families are more than able to pay a mortgage but just don’t have the savings to put money down."
The quotas for loans in "underserved areas" mandated by the department of Housing and Urban Development rose from 21% at the beginning of the Clinton administration to 39% during the Bush administration. "Underserved areas" are officially defined as "low-income census tracts or in low- or middle-income census tracts with high minority populations."
With the Democrats including hundreds of millions of dollars in increased founding for groups like La Raza and ACORN, for the purposes of increasing minority home ownership, in the recent housing bailout bill, it is clear that the economic principles we should be practicing are still being ignored by Washington. In a followup piece, we'll look at how Washington ignored the lessons of Teddy Roosevelt's trust busting, the consequences of which helped lead to the largest economic bailout package in history.