Bill Clinton on the Mortgage Crisis

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The Community Reinvestment Act, passed in 1977, requires banks to lend to low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 wascaused by a 1977 law is silly. But it's even more rediculous when you consider that most subprime loans were made by firms that aren't subject to the CRA.
Fifty percent of subprime loans were made by mortgage service
companies that were not subject to comprehensive federal supervision, and another 30% were made by affiliates of banks, or Thrifts, which are not subject to routine supervision or examinations. Former Fed Governor Ned Gramlich said in an August 2007 speach shortly before he passed away: "In the subprime marketwhere we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat."
Not surprisingly, under the CRA's Higher supervision, loans made under the CRA Program were made in a more responsible way than Other subprime loans. According to a study done by the law firm Traiger and Hinckley,CRA loans carried a lower rate than other subprime loans and were less likely to to end up securitized into the mortgage-backed securities that have caused so many losses.
And finally,(This is crucial information), keep in mind that the Bush administration had weakened CRA enforcement and the law's reach since the day they took office. The CRA was at it's strongest in the 1990's under the Clinton administration, a period when subprime loans performed quite well. It was Only AFTER the Bush administration cut back on CRA enforcement that problems arose, an issue in timing that should put to rest the finger pointing at other people and stop those blaming the CRA law in their tracks.
Furthermore, The Federal Reserve did nothing but encourage the
wild west of lending during those years. It wasn't until the
middle of 2007 that the Fed decided that it was time to crack down on abusive lending practices in the subprime market.
Better targets for blame in government might be the 2000 law that ensured that credit default swaps would remain unregulated, the SEC's puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital, and that same agency's failure to oversee those brokerage firms in subsequent years as many of them gorged on subprime debt.

AmericanMade of IL 9:41AM September 03, 2011

Unfortunately Mr. Clinton does not understand how mortgage loans are originated and sold in the secondary market. This is exactly how the corner grocery store that sells cigarette is blamed for causing cancer to the consumer. HELLO where is the billion dollar manufacturer, the distributor and the surgeon general????

Houry Aposhian of CA 4:13PM May 09, 2008

How is it that Bill Clinton can talk about an issue, act as though he's an authority on the subject, but have absolutely no clue what he's saying? During his term as president, HUD had their highest delinquency rates ever. Many of those loans were securitized by wall street and packaged as well. He said while consumers were advised their rates could go up, no one advised the consumer that the loans could be packaged into securities. What affect does that have on the mortgage borrower. It's a shame that brokers are attacked by people who don't understand the system. Brokers are the only group that disclose everything to the consumers. Banks do not have those same disclosure requirements. As far as I know, brokers have never designed a mortgage program, determined the amount of acceptable risk for the program, approved the borrower for the loan, funded the loan, sold it to wall street, or foreclosed on the loan. All of that is done by the greedy banks and wall street. By the way, check out the Georgetown University study that shows borrowers who obtain a mortgage through a mortgage broker actually receive a better rate than those who went directly to the banks. The difference in the rate was over 1% !!!

George H of PA 9:29AM May 09, 2008

Mr. Clinton is not accurate in his condemation of mortgage brokers. A broker has never secutized any mortgage loans. Brokers only sell loan products that are developed by lenders (mortgage banking companies and commericial banks). Loans are delivered into mortgage backed securities (not stocks) that are sold to FNMA and FHLMC by these same lenders, not mortgage brokers. Brokers have no part in the securitization, sale or approval of any mortgage loans. Mr. Clinton, get your facts straight before you slander a whole group of people.

R. Miller of MD 9:12AM May 09, 2008