Republican Phil Gramm was the sponsor of the 1999 Gramm-Leach-
Bliley Act which removed depression-era Glass-Steagall Act requiring a
separation between banking, investment, insurance, and brokerage
activities. Bush considered appointing Gramm as the Secretary of
Treasury and now Gramm is considered as McCain’s frontrunner for the
post. Gramm’s and the Republican Congress’ Act was the first key
piece of de-regulation that put into place this economic crisis.
How did the repeal of this Act have a role in the current crisis?
The Act allowed, for the first time since the Great Depression, banks
to deal in securities which allowed them to purchase mortgage-backed
securities. If not for the Gramm-Leach-Bliley Act being passed by the
Republican Congress, banks could not have dealt in mortgage-backed
securities.
Did Clinton have a role in this deregulation? Clinton did
initially threaten to veto this Act, but eventually signed it into
law. At that time, the Republicans had the majority in Congress, it
was a Republican-authored Bill, and the Republicans had enough votes
to override a veto by Clinton.
Nonetheless, the Gramm-Leach-Bliley Act was only the first step
that was taken to create this mess. In addition to the Gramm-Leach-
Bliley Act, the Republican Administration and Congress furthered this
mess between 2001 and 2006. In order to stimulate the economy, stave
off a recession, and feed the market's huge demand for more mortgage-
backed securities, Bush aggressively pushed the lending industry to
make massive amounts of mortgage loans. To do so, he called for the
most massive increase minority and low income homeownership in our
history as part of his "Ownership Society" plan.
In 2001/2002, Bush created "America's Home Ownership Challenge"
in which he challenged the private lending sector as well as Fannie
Mae and Freddie Mac to make more than 5.5 million new minority and low
income mortgage loans. To meet his challenge to the private lending
industry, 24 of our largest banking and lending companies pledged to
make 1.1 trillion dollars in low income and minority loans. You can
find all of the official documents in the White House Press Releases
if you use "America's Home Ownership Challenge" as your search term in
the White House archives.
Bush aggressively pushed the private lending industry to make
over 1.1 trillion in low income and minority lows and to "create more
creative" loan products to do it. He pushed them to "loosen credit
standards" and pushed them to make the most risky loan products
available to the riskiest buyers. Then, he turned to Fannie Mae and
Freddie Mac and threatened to not rewrite their regulatory charters.
The government-sponsored corporations created to increase the
liquidity of mortgage markets, so more capital would be available for
mortgage loans, are supposed to lead the market in reaching
underserved populations. While these corporations have increased their
commitments to these efforts, they lag behind private lenders in this
regard, according to government studies. The Administration will
revisit the regulatory goals for these corporations’ purchases of
affordable housing loans, which are set to expire in 2003. The federal
government should demand more and should hold such publicly-chartered
corporations accountable for better performance.
(From Bush’s Press Release entitled “A Home of Your Own EXPANDING
OPPORTUNITIES FOR ALL AMERICANS, PRESIDENT GEORGE W. BUSH JUNE 2002”
regarding his “America’s Homeownership Challenge).
The Bush Administration issued the following press release
hailing its successes in pushing the private lending industry and
Fannie Mae and Freddie Mac into making more low income and minority
loans:
Under President Bush's leadership, overall U.S. homeownership in
the second quarter of 2004 reached an all-time high of 69.2 percent.
Single-family housing affordability is at its highest level in 30
years, and minority homeownership set a new record-high of 51 percent
in the second quarter.
The President has called on Congress to work with him on
additional steps to promote homeownership in America. He has set bold
goals for homeownership, including his challenge to the Nation to
create 5.5 million new minority homeowners by the end of the decade -
and he has now set an additional goal of 7 million new affordable
homes.
(White House Press Release – “Increasing Affordable Housing &
Expanding Homeownership).
Through the Republican Congress in 2003 and the Bush
Administration's work through HUD and the FHA, the Bush Administration
forced Fannie Mae and Freddie Mac to, for the first time, make
available riskier loan products to minority and low income buyers.
The Federal Housing Administration Mortgage Program. In 2002, the
President issued America’s Homeownership Challenge to increase first-
time minority homeowners by 5.5 million through 2010. The Federal
Housing Administration (FHA) mortgage program is an important tool for
reaching that goal. In 2006, 31 percent of those using FHA mortgages
were minorities purchasing their first home. The 2008 Budget continues
Administration efforts to modernize FHA by improving its ability to
reach traditionally underserved homebuyers (aka those who do not
normally qualify for loans), such as low- and moderate-income
families, individuals with blemished credit, and families who have
little savings for a down payment.
(From Bush Administration’s White House Press Release entitled,
“Focusing on the Nation’s Priorities – Meeting America’s Housing
Needs”).
The Bush Administration through HUD, also required Fannie and
Freddie to give a higher percentage of their loans to loan-income and
minorities that otherwise would not qualify for the loans.
That's why I've challenged the industry leaders all across the country
to get after it for this goal, to stay focused, to make sure that we
achieve a more secure America, by achieving the goal of 5.5 million
new minority home owners. I call it America's home ownership
challenge.
And let me talk about some of the progress which we have made to date,
as an example for others to follow. First of all, government sponsored
corporations that help create our mortgage system -- I introduced two
of the leaders here today -- they call those people Fannie May and
Freddie Mac, as well as the federal home loan banks, will increase
their commitment to minority markets by more than $440 billion.
(Applause.) I want to thank Leland and Franklin for that commitment.
It's a commitment that conforms to their charters, as well, and also
conforms to their hearts.
(From White House Speech archives – “President calls for Expanding
Opportunities to Homeowners” at St. Paul AME Church in Atlanta,
Georgia).
Franklin Raines, the head of Fannie Mae at the time, also
responded to Bush’s “Challenge” in a letter, stating:
June 13, 2002
President George W. Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Dear Mr. President:
As America’s largest source of private capital for affordable
housing, Fannie Mae applauds your call for “broader homeownership,
especially for minorities.” We accept your challenge to the private
sector to join in partnership to address America’s housing needs. And
we are proud to step up to your challenge by launching an even greater
commitment of private capital and creative strategies to expand
minority homeownership. * * * (the full letter can be found online).
Then, the following press release was sent out:
Fannie Mae Chairman and CEO, Franklin D. Raines today joined
President Bush and U.S. Department of Housing and Urban Development
(HUD) Secretary Mel Martinez, and other industry leaders and non-
profit organizations, for a housing summit to promote the
Administration's proposal to expand minority homeownership.
* * *
Fannie Mae's ten-point plan to help advance the Bush
Administration's homeownership proposals was included in the Blueprint
for the American Dream document released by HUD today.
The Blueprint for the American Dream that we unveiled today is
the response to the `homeownership challenge' President Bush issued in
June to increase minority homeownership," said HUD Secretary Mel
Martinez. "Our partners, representing every segment of the affordable
housing industry, are committed to working together to achieve the
President's goal of adding 5.5 million new minority homeowners by the
end of the decade."
In his February State of the Union address President Bush called
for "broader homeownership, especially among minorities." In June,
President Bush challenged both the public and private sector to be a
partner in his crusade to create 5.5 million new minority homeowners
by the end of the decade.
Fannie Mae responded by committing $700 billion in home financing
to 4.6 million minority households through 2009. This increases by 66
percent the specific pledge Fannie Mae made in 2000 to minority
families through it's American Dream Commitment plan to provide $420
billion for three million minority families.
(quotes from Fannie Mae and Freddie Mac in Business Wire “President
Bush’s Nationwide Effort to Increase Minority Homeownership” – October
15, 2002).
Fannie Mae responding to Bush’s aggressive push by committing $700
billion for low income and minority loans, a 66 percent increase in
its previous pledge made in 2000.
In 2003, the following article was on Washington Business Wire:
WASHINGTON--(BUSINESS WIRE)--March 18, 2003--On the third
anniversary of its "American Dream Commitment(R)," Fannie Mae and its
lender partners already have fulfilled over half of its ten-year
pledge to provide $2 trillion in home financing for 18 million
historically underserved families, Fannie Mae Chairman and CEO
Franklin D. Raines announced today.
To date, Fannie Mae has provided more than $1.3 trillion for
nearly 12 million targeted families, completing two-thirds of the
American Dream Commitment in about 30 percent of the time, and leading
the market in serving minorities and the nation's affordable housing
needs.
Joining with representatives from 11 leading mortgage lenders and
Fannie Mae partners, Raines applauded the mortgage finance industry
for its extraordinary efforts to reach and serve "emerging markets" of
historically underserved families and communities, deliver Fannie
Mae's $2 trillion in targeted capital, and extend the benefits of the
nation's housing boom.
Lender partners participating in today's announcement include:
Bank of America; Bank One Corporation; Charter One Bank; Countrywide
Financial Corporation; Doral Financial Corporation; First Horizon Home
Loan Corporation; Fleet Boston Bank; Huntington Mortgage Company;
Irwin Mortgage; J.P. Morgan Chase & Co.; and Standard Mortgage
Corporation.
"Together, America's top lenders and Fannie Mae have made
terrific progress in bringing the nation's housing boom to overlooked
Americans and addressing the gaps in housing opportunity," Raines
said. "Fannie Mae applauds our lender partners for helping us surpass
the halfway mark in our $2 trillion commitment to underserved families
so quickly. Together, we lead the market in serving Americans of color
and modest means."
The Administration and Republican Congress also passed the “American
Dream Downpayment Act of 2003” to allow low income and minorities with
blemished credit and no ability to come up with a downpayment to have
the government cover their downpayment and closing costs. The Act
gave 161.5 million dollars in taxpayer money to cover the downpayment
and closing costs of minorities and low income individuals that would
not be able to afford a downpayment and/or had “blemished credit.”
On December 16, 2003, President Bush signed into law the American
Dream Downpayment Act of 2003, which will help approximately 40,000
families a year with their down payment and closing costs, and further
strengthen America’s housing market. This legislation complements the
President’s aggressive housing agenda announced in 2002 to dismantle
the barriers to homeownership.
(From White House Press Release “American Dream Downpayment Act of
2003 – Expanding Homeownership Opportunities for All).
Bush also pushed and passed a "Zero-down Payment" initiative.
BUSH ADMINISTRATION ANNOUNCES NEW HUD "ZERO DOWN PAYMENT" MORTGAGE
Initiative Aimed at Removing Major Barrier to Homeownership
LAS VEGAS - As part of President Bush's ongoing effort to help
American families achieve the dream of homeownership, Federal Housing
Commissioner John C. Weicher today announced that HUD is proposing to
offer a "zero down payment" mortgage, the most significant initiative
by the Federal Housing Administration in over a decade. This action
would help remove the greatest barrier facing first-time homebuyers -
the lack of funds for a down payment on a mortgage.
Speaking at the National Association of Home Builders' annual
convention, Commissioner Weicher indicated that the proposal, part of
HUD's Fiscal Year 2005 budget request, would eliminate the statutory
requirement of a minimum three percent down payment for FHA-insured
single-family mortgages for first-time homebuyers.
"Offering FHA mortgages with no down payment will unlock the door to
homeownership for hundreds of thousands of American families,
particularly minorities," said HUD's Acting Secretary Alphonso
Jackson. "President Bush has pledged to create 5.5 million new
minority homeowners this decade, and this historic initiative will
help meet this goal."
Preliminary projections indicate that the new FHA mortgage product
would generate about 150,000 homebuyers in the first year alone.
"This initiative would not only address a major hurdle to
homeownership and allow many renters to afford their own home, it
would help these families build wealth and become true stakeholders in
their communities," said Commissioner Weicher. "In addition, it would
help spur the production of new housing in this country.”
The Administration, through HUD, further forced Fannie Mae and
Freddie Mac to offer riskier 3, 5, and 7 year arm loan products to low
income and minorities.
BUSH ADMINISTRATION ANNOUNCES NEW ADJUSTABLE-RATE MORTGAGE PRODUCTS TO
ENHANCE HOMEBUYING OPPORTUNITIES
40,000 More Families Expected To Benefit From New Offerings
WASHINGTON – The Department of Housing and Urban Development is
proposing to enhance homebuying opportunities by expanding its
offerings of adjustable-rate mortgage (ARM) products on FHA-insured
mortgages. Potential homebuyers would be able to choose mortgages with
periods of three, five, seven or ten years, depending on their needs,
during which time the interest rate would be fixed. “By offering
additional types of FHA-insured ARMs tailored to the financial
conditions and desires of the borrowers, we are creating more
homeownership opportunities,” said HUD Secretary Mel Martinez today in
a speech to America’s Community Bankers. “We estimate that as many as
40,000 families a year will choose these new adjustable-rate mortgages
as their way of financing their home purchase.”
(HUD Press Release).
Bush and the Republican Congress forced Fannie Mae and Freddie
Mac to make zero-down loans and adjustable rate 3, 5, and 7 year arms
available to the riskiest buyers. Fannie Mae and Freddie Mac were
forced to effectively finance 103 percent of the mortgage (including
closing costs).
The Administration often pointed to the huge increase in
housing as one of its greatest successes.
[The Administration has] Helped Americans buy homes, expanding the
homeownership rate to nearly 70 percent and the minority homeownership
rate to over 51 percent nationwide. With approximately three million
minorities owning a home for the first time, the Nation now has the
highest minority homeownership rate in its history. Furthermore, the
Administration is ahead of schedule in achieving the Presidential goal
of adding 5.5 million new minority homeowners by 2010.
(From Bush Administration’s press release entitled “Expanding Home
Ownership” under section entitled “Accomplishments”).
It was between 2001-2005 that most of these loans that have gone
bad were made. You can find all of the official documents at the White
House, HUD, and Fannie Mae and Freddie Mac press release websites. You
can also find the head of Fannie Mae's letter (Raines) back to Bush
(after Bush threatened to not renew their charter) saying that he
would meet his aggressive challenge online.
So why did Bush and the Republican Congress push minority and
low income loans? They pushed it for two main reasons. First, the
economy was facing a recession and they looked to stimulate economy by
stimulating the housing market. In fact, the Administration pointed
to the huge increase in housing numbers under his “leadership” to show
that he stimulated the economy to keep us out of a recession. Second,
there was a huge demand in the securities market for mortgage-backed
securities and there were not enough of them to keep up with demand.
Mortgage-backed securities were in such demand because it allowed
banks and lenders to turn an illiquid asset - mortgages-- into a
liquid asset by bundling the mortgages and selling them as
securities. Also, many thought that they were great securities to buy
because they were further secured by collateral -- the homes -- and if
they debt went bad, the collateral could be sold. They also thought
that the mortgage-backed securities bundled from loans made through
Fannie and Freddie were government guaranteed because they are quasi-
government agencies.
In any event, there was a huge demand for these in the market and
not enough supply. To increase supply for mortgage-backed securities,
more loans had to be made. The only way to get more loans made was to
come up with more creative loan products to get people into homes that
otherwise would not qualify. So the Bush Administration and
Republican Congress aggressively came up with ways to allow
individuals who normally could not get loans to get loans.
The problem was, in part, the housing “bubble” started to burst
and home values started to fall. At the same time, many of the 3 and
5 year arm loans were set to adjust to higher interest rates. Some
homeowners did not have the thousands of dollars to pay the closing
costs of refiancing. Other homeowners went to re-finance, but were
unable to re-finance their mortgages because their homes were now were
less than what they owed on their mortgages. Their interest rates
shot up incredibly high rates, like 15.9%. Homeowners saw their
mortgage payments triple and could no longer afford their homes. The
cause of the foreclosures in most cases were “creative loan products”
with low introductory rates that were scheduled to shoot up or
adjustable rates that shot up to unconscionable rates that left
individuals unable to pay their very high mortgages as well as the
loss in home value that left individuals unable to refinance their
mortgages at reasonable fixed rates.
Go to the HUD website and search in the archives - "Blueprint for the
American Dream" to see the most massive push for subprime home loans
in U.S. history made by the Republican administration.
Here is a list of some of the White House Press Releases on the
subject.
Homeownership Policy Book - Chapter 2
Establish a national goal of at least 5. Challenge the private sector
real estate and mortgage finance industries to dramatically increase
their ..
http://www.whitehouse.gov/infocus/homeownership/ homeownership-policy-
book-ch2.html - 9.8KB
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Homeownership Policy Book - Executive Summary
Buying a home is the biggest single investment most people will make
in their lives. But sadly, homeownership is out of reach for many
Americans -..
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book-execsum.html - 9.5KB
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FINAL Homeownership Policy Book 6-14-02.doc
CHAPTER 2 MOBILIZING THE PRIVATE SECTOR: AMERICA’ S HOMEOWNERSHIP
CHALLENGE • Establish a national goal of at least 5.5 million new
minority ..
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FINAL Homeownership Policy Book 6-14-02.doc
EXECUTIVE SUMMARY EXECUTIVE SUMMARY Buying a home is the biggest
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is a ..
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Fact Sheet: Expanding Homeownership Opportunities for All Americans
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FINAL Homeownership Policy Book 6-14-02.doc
A Home of Your Own EXPANDING OPPORTUNITIES FOR ALL AMERICANS P R E S I
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Fact Sheet: Dismantling the Barriers to Homeownership
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President Bush supports homeownership, which gives Americans a greater
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A Home of Your Own: Expanding Opportunities for All Americans
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