Wednesday, February 27, 2013

Meet the Man Responsible for the Mortgage Meltdown


Andrew Cuomo joined the Department of Housing and Urban Development in 1993 as the Assistant Secretary.  In 1997, at the beginning of Clinton's second term Cuomo succeeded Henry Cisneros as HUD Secretary after Cisneros resigned amid a brewing bank fraud scandal for which he would later admit guilt.
In December 1997, Cisneros was indicted on 18 counts of conspiracy, giving false statements and obstruction of Justice. Medlar used some of the Cisneros hush money to purchase a house and entered into a bank fraud scheme with her sister and brother-in-law to conceal the source of the money. In January, 1998, Medlar pleaded guilty to 28 charges of bank fraud, conspiracy to commit bank fraud and obstruction of justice.
In September 1999, Cisneros negotiated a plea agreement, under which he pleaded guilty to a misdemeanor count of lying to the FBI, and was fined $10,000. He did not receive jail time or probation. He was pardoned by President Bill Clinton in January 2001.[1]

During his tenure as HUD Secretary Andrew Cuomo pushed hard for increased home ownership.  Edward Pinto, Chief Credit Officer at Fannie Mae said the Cuomo was forcing mortgage lenders to make risky loans, "Cuomo was pushing mortgage bankers to make loans and basically saying you have to offer a loan to everybody." [4]

To accomplish his goal of increased minority home ownership, Cuomo used provisions in the Housing and Community Development Act of 1992, a law sponsored by Democrat Rep. Henry Gonzalez that set mandates on Fannie Mae and Freddie Mac of 21% of loan purchases be related to affordable housing.  The mandates on GSEs Freddie and Fannie were pushed from 21% at the beginning of the Clinton administration to 39% in the George W. Bush tenure.[2]

Howard Husock, of the Manhattan Institute for Policy Research wrote, "[They] turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks."[3]  

Fannie and Freddie, in order to comply with Cuomo's mandates, began lowering borrowing requirements.  They also created the bundled mortgage securities known as derivatives in order to reduce the risk being created by purchasing sub prime, Alt-A and NINJA (No Income, No Job or Assets) loans.  These derivatives would later be blamed for the mortgage crisis by those on the left who wished to disguise their culpability.  However, a Securities and Exchange Commission investigation found that it was, in fact, Fannie and Freddie's defrauding of investors through these securities that led to the market collapse.

Husock also wrote that the Clinton Administration had ignored decades of banking regulations that had been enacted:
"[T]he Clinton Treasury Department's 1995 regulations made getting a satisfactory CRA rating much harder. The new regulations de-emphasized subjective assessment measures in favor of strictly numerical ones. Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A's for effort. Only results—specific loans, specific levels of service—would count. Where and to whom have home loans been made? Have banks invested in all neighborhoods within their assessment area? Do they operate branches in those neighborhoods?"[3
Cuomo said of the drastic changes he was championing, "It will strengthen our economy, it will help ease the terrible shortage of affordable housing plaguing far too many communities, and it will help reduce the huge homeownership gap dividing whites from minorities and suburbs from cities."[4]

A noble goal, but the truth is what he and fellow Democrats really wanted wasn't to increase minority homeownership, it was to funnel money to far left organizations like ACORN under that auspice. 

Husock explains, "Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being."[3]

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