While both Mccain and Obama are pointing to corporate greed and a lack of government regulation that led to the American mortgage crises, the real reason is too much government intervention. This government intervention came in the form of "politically correct" social engineering through pressuring Freddie Mac and Fannie Mae into unsound lending practices.
In the last 20 years the federal government pushed the mortgage industry hard to get minority homeownership up at the expense of good business practices. Since the 1990's virtually every branch of the government attacked the mortgage underwriting standards in an attempt to increase homeownership by minorities and the less affluent. This was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists. Although this path endangered the entire mortgage enterprise, the community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership.
According to John Lott (a senior research scientist at the University of Maryland), the Federal Reserve Bank of Boston produced a manual in the early '90s that warned mortgage lenders to no longer deny urban and lower-income applicants on such "outdated" criteria as credit history, down payment or employment income. He also claims that Mae and Freddie Mac encouraged and praised lenders - like Countrywide and Bear Stearns - for adopting the slackened policies toward minority and less affluent applicants. Given these Federal mandated lending practices, its not surprising that it resulted in financial problems for institutions like Countrywide and Bear Stearns.
- Bill
A Free Market Evangelist
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