Conservative and other media figures, echoing a reported strategy on the part of Republicans,
have attempted to deflect blame for the financial crisis onto proponents of the expansion of
affordable housing and legislation and institutions created to effect that expansion.
Newsweek senior editor Daniel Gross wrote in an October 7 Slate commentary:
On the Republican side of Congress, in the right-wing financial media (which is to say the
financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that
the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage
giants, and the Community Reinvestment Act, a law passed during the Carter administration. The
CRA, which was amended in the 1990s and this decade, requires banks -- which had a long,
distinguished history of not making loans to minorities -- to make more efforts
to do so.
Recent attacks have turned personal, with conservative media -- along with congressional
Republicans and Sen. John McCain -- targeting Rep. Barney Frank (D-MA) directly as a purported
culprit in the financial crisis, falsely representing his decades-long advocacy of increased
affordable housing as advocacy of lax oversight over Fannie and Freddie.
The attacks are premised on several myths and falsehoods and, in the case of CRA and attacks on
minority lending, have taken on a racial tinge.
MYTH: The 1977 Community Reinvestment Act forced lenders into irresponsible
lending
In a September 28 Boston Globe column, Jeff Jacoby asserted:
The roots of this crisis go back to the Carter administration. That was when government
officials, egged on by left-wing activists, began accusing mortgage lenders of racism and
"redlining" because urban blacks were being denied mortgages at a higher rate than suburban
whites.
The pressure to make more loans to minorities (read: to borrowers with weak credit histories)
became relentless. Congress passed the Community Reinvestment Act, empowering regulators to
punish banks that failed to 'meet the credit needs' of 'low-income, minority, and distressed
neighborhoods.' Lenders responded by loosening their underwriting standards and making
increasingly shoddy loans."
Jacoby is not alone in his reference to "minority" lending. On the September 18 edition of Fox
News' Your World, host Neil Cavuto asked Rep. Xavier Becerra (D-CA), "[W]hen
you and many of your colleagues were pushing for more minority lending and more expanded lending
to folks who heretofore couldn't get mortgages, when you were pushing homeownership ... Are you
totally without culpability here?" Cavuto later said, "I'm just saying, I don't remember a
clarion call that said, 'Fannie and Freddie are a disaster. Loaning to minorities and risky folks
is a disaster.' "
But the suggestion that the financial crisis was caused by banks lending irresponsibly to comply
with the CRA is widely discredited. According to housing
experts, a large number of subprime loans were not made under the CRA, which applies only to
depository institutions. A study released earlier this year by a law firm specializing in CRA
compliance estimated that in the 15 most populous metropolitan areas, 84.3 percent of
subprime loans in 2006 were made by financial institutions not governed by the CRA. Moreover,
Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, stated in a March
2008 speech that "studies have shown that the CRA has increased the volume
of responsible lending to low- and moderate-income households" [emphasis added].
In testimony before the House Financial Services Committee, University of Michigan law professor
Michael Barr
stated:
Despite the fact that CRA appears to have increased bank and thrift lending in low- and
moderate-income communities, such institutions are not the only ones operating in these areas. In
fact, with new and lower-cost sources of funding available from the secondary market through
securitization, and with advances in financial technology, subprime lending exploded in the late
1990s, reaching over $600 billion and 20% of all originations by 2005. More than half of subprime
loans were made by independent mortgage companies not subject to comprehensive federal
supervision; another 30 percent of such originations were made by affiliates of banks or thrifts,
which are not subject to routine examination or supervision, and the remaining 20 percent were
made by banks and thrifts. Although reasonable people can disagree about how to interpret the
evidence, my own judgment is that the worst and most widespread abuses occurred in the
institutions with the least federal oversight.
The housing crisis we face today, driven by serious problems in the subprime lending, suggests
that our system of home mortgage regulation, including CRA, is seriously deficient. We need to
fill what my friend, the late Federal Reserve Board Governor Ned Gramlich aptly termed, "the
giant hole in the supervisory safety net." Banks and thrifts are subject to comprehensive federal
regulation and supervision; their affiliates far less so; and independent mortgage companies, not
at all. Moreover, many market-based systems designed to ensure sound practices in this
sector-broker reputational risk, lender oversight of brokers, investor oversight of lenders,
rating agency oversight of securitizations, and so on -- simply did not work. Conflicts of
interest, lax regulation, and "boom times" covered up the extent of the abuses -- at least for a
while, at least for those not directly affected by abusive practices. But no more.
Others who have advanced this or similar claims include guest Jonathan
Hoenig during the September 25 edition of The Radio Factor with Bill O'Reilly, radio
host Laura Ingraham during the September 25 edition of Fox News' The O'Reilly Factor,
and a September 25 Investor's Business Daily
editorial claiming that the CRA "forced banks to make many more subprime loans."
MYTH: Excessive lending to undocumented immigrants is responsible for the financial
crisis
On the October 9 edition of CNN's Lou Dobbs Tonight, San Diego radio host Roger
Hedgecock claimed that "[w]e have a
situation where today HUD [the Department of Housing and Urban Development] was talking about 5
million illegal alien home mortgage loans that have gone bad." Radio host Joe Madison responded,
"You see, this really angers me, because I'm sitting here ... and wondering, how is it that
people who are illegal get loans when people in my community who are legal have a difficulty
getting loans, and if they do get them, they're often from predators?" Neither Hedgecock nor
Madison cited a source for the purported HUD statistic. On October 9, the Drudge Report linked to
an article on the
Phoenix radio station KFYI website under the headline,
"HUD: Five Million Fraudulent Mortgages Held by Illegals..." However, according to an October 9
Phoenix Business Journal
article posted at 3:15 pm MT (more than an hour before Lou Dobbs Tonight aired), HUD
"says there is no basis to news reports that more than 5 million bad mortgages are held by
illegal immigrants" and "a HUD spokesman said ... his agency has no data showing the number of
illegal immigrants holding foreclosed or bad mortgages."
Other media figures advancing the claim that lending to undocumented immigrants is responsible
for the mortgage crisis include syndicated columnist Michelle Malkin, who
wrote in her September 24 column that "there's one giant paternal elephant in the room that
has slipped notice: How illegal immigration, crime-enabling banks, and open-borders Bush policies
fueled the mortgage crisis.
MYTH: Congressional Democrats, led by Barney Frank, opposed strengthening oversight over
Fannie and Freddie
In a September 18 column, Fox News host Bill O'Reilly falsely claimed that Frank "sat by as
mortgage brokers Fannie Mae and Freddie Mac made bad loans" and asserted that "[i]nstead of
demanding responsible business practices from Fannie and Freddie, Frank continued to pound the
table to extend even more credit to 'low income' families." In fact, Frank did not "s[i]t by."
Frank's efforts to enhance regulatory oversight on Fannie Mae and Freddie Mac include:
- In 2005, Frank, then the ranking Democrat on the House Financial Services Committee, worked
with committee chairman Rep. Michael Oxley (R-OH) on the Federal Housing Finance Reform Act of
2005, which would have established the Federal Housing Finance Agency (FHFA) to replace the Office
of Federal Housing Enterprise Oversight (OFHEO) as overseer of the activities of Fannie Mae and
Freddie Mac. After voting for the bill in committee, Frank voted against final passage of the bill on the House floor, stating that he was doing so because an amendment to the bill on the House floor imposed restrictions on the kinds of nonprofit organizations
that could receive funding under the bill.
- In early 2007, as chairman of the House Financial Services Committee, Frank sponsored H.R. 1427, a bill to create the FHFA, granting that agency "general
supervisory and regulatory authority over" Fannie Mae and Freddie Mac, and directing it to
reform the companies' business practices and regulate their exposure to credit and market risk.
Among other things, Frank's legislation, titled the "Federal Housing Finance Reform Act of 2007," directed the FHFA director to "ensure" that Fannie Mae and Freddie Mac
"operate[] in a safe and sound manner, including maintenance of adequate capital and internal
controls" and to establish standards for "management of credit and counterparty risk" and
"management of market risk." The FHFA was eventually created after Congress incorporated
provisions that House Speaker Nancy Pelosi (D-CA) said were "similar" to those of H.R. 1427 into the Housing and Economic Recovery Act
of 2008, which the president signed into law on July 30.
Some in the conservative media have taken the charge further, suggesting that in the 1990s, Frank
allowed his relationship with Fannie Mae executive Herb Moses to affect his responsibility as a
senior member of the House Financial Services Committee to conduct oversight over Fannie Mae. For
example, in an October 3 article, Fox
News deputy Washington Managing editor Bill Sammon asserted, in a charge he later echoed on Fox
News' The O'Reilly Factor, "Unqualified home buyers were not the only ones who
benefitted from Massachusetts Rep. Barney Frank's efforts to deregulate Fannie Mae throughout the
1990s. So did Frank's partner, a Fannie Mae executive at the forefront of the agency's push to
relax lending restrictions."
In his article, however, Sammon cited only two sources: an anonymous Republican congressional
staffer and Dan Gainor, who, Sammon did not note, is an employee of the conservative Media
Research Center. Moreover, Sammon misrepresented Frank's record by reporting in his article that
Frank "spent years blocking GOP lawmakers from imposing tougher regulations" on Fannie Mae and
Freddie Mac. Sammon did not note in his article or during an October 6 appearance on The
O'Reilly Factor that in the early 1990s, while Frank's Democratic Party still held the
majority in Congress, and while Moses was at Fannie Mae, Frank supported bills to
increase regulation of Fannie Mae and create a government regulatory agency
that would supervise and have authority over some aspects of the company:
- On September 30, 1991, Frank voted for a bill to create a new regulatory agency to oversee Fannie and Freddie that
would have "[r]equire[d] the [agency's] Director to establish by regulation a risk-based
capital test for the enterprises," "[r]equire[d] the Director to establish risk-based capital
levels for each enterprise according to statutory guidelines," "[e]stablishe[d] minimum capital
levels, critical capital levels, and enforcement levels," and "[s]et[] forth mandatory
supervisory actions for the enterprises at various capital levels, including mandatory
conservatorship."
- In October 1992, Frank voted for the Housing and Community Development Act of 1992, creating OFHEO, which was
tasked with "ensur[ing] that Fannie Mae and Freddie Mac (the enterprises) and their affiliates
are adequately capitalized and operating safely." As with the bill Frank voted for in September
1991, the new law gave OFHEO authority to set, monitor, and enforce risk-based capital
requirements for Fannie and Freddie.
Neal Boortz also advanced this claim about Frank and his former partner during the October 8 edition of his nationally
syndicated radio show. On October 8, The Wall Street Journal
reported that "[a] conservative political organization will begin airing nationwide TV
advertisements Wednesday that criticize congressional Democrats for their ties to mortgage giants
Freddie Mac and Fannie Mae."
MYTH: Fannie Mae and Freddie Mac caused the "current financial mess"
In a September 19 Huffington Post blog post, Center for American Progress senior fellow David
Abramowitz
wrote:
"There must be a Republican playbook circulating widely with a chapter entitled, 'What to say if
asked who's to blame for the foreclosure mess.' Because an awful lot of Republican candidates are
all suddenly yelling 'Fannie Mae, Fannie Mae, Fannie Mae' whenever plunging home prices and the
housing crisis comes up. [...] So their plan seems to be to chant Fannie Mae often and loudly
enough, and hope the public will get confused about who really caused this huge national
calamity. It is always a good political story to just blame a bad guy who has something to do
with the same topic.
Indeed, during the September 24 edition of Fox News' Special Report, host Brit
Hume said, "Many
financial analysts are saying that if mortgage giants Fannie Mae and Freddie Mac had been
effectively regulated years ago, the supercharged subprime mortgage meltdown that led to the
current financial mess would either never have happened or would have been nowhere near as
severe." But rebutting the suggestion
that the subprime mortgage purchasing activities of Fannie Mae and Freddie Mac caused the
"current financial mess," economist Dean Baker recently stated:
Fannie and Freddie got into subprime junk and helped fuel the housing bubble, but they were
trailing the irrational exuberance of the private sector. They lost market
share in the years 2002-2007, as the volume of private issue mortgage backed securities exploded.
In short, while Fannie and Freddie were completely irresponsible in their lending practices, the
claim that they were responsible for the financial disaster is absurd on its face -- kind of like
the claim that the earth is flat.
Indeed, in a 2006 Securities and Exchange Commission filing (available here) covering its activities in 2004, Fannie Mae stated: "We did not
participate in large amounts of these non-traditional mortgages in 2004 and 2005." In the report,
Fannie Mae also noted the growth of subprime lending and reported, "These trends and our decision
not to participate in large amounts of these non-traditional mortgages contributed to a
significant loss in our share of new single-family mortgage-related securities issuances to
private-label issuers during this period."
Gross wrote in Slate that Fannie Mae and Freddie Mac were an "integral part" of a "culture of
stupid, reckless lending." But, he wrote, they are not the primary culprits in the current
financial crisis. He wrote:
Investment banks created a demand for subprime loans because they saw it as a new asset class
that they could dominate. They made subprime loans for the same reason they made other loans:
They could get paid for making the loans, for turning them into securities, and for trading
them-frequently using borrowed capital.
As an example, he noted that the following happened during testimony by Lehman Brothers CEO
Richard Fuld before the House Committee on Oversight and Government Reform:
At Monday's hearing, Rep. John Mica, R-Fla., gamely tried to pin Lehman's demise on Fannie and
Freddie. After comparing Lehman's small political contributions with Fannie and Freddie's much
larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise.
Fuld's response: "De minimis."
From Fuld's testimony:
MICA: And one of your big com -- well, one of the big packagers, or the competitor, so to speak,
was Fannie Mae, which was deep into this. And you were -- you were dealing in some of the paper,
I think, for secondary markets and other securitized mortgage paper, to basically package it and
make money off it. Is that right?
FULD: Yes, sir.
MICA: What was Lehman Brothers' exposure to the debt of Fannie Mae and Freddie Mac, and what role
did their collapse play in precipitating some of your financial troubles?
FULD: Our --
MICA: It didn't matter or you --
FULD: Our exposure to both Fannie Mae and Freddie Mac was de minimis, sir.
MYTH: Sen. Barack Obama's campaign has significantly more ties to Fannie Mae and Freddie
Mac than does John McCain's
In articles about the presidential candidates' responses to the economic crisis, the Associated Press, the Milwaukee Journal
Sentinel, the San Francisco Chronicle, and The Washington Post reported that the McCain campaign criticized
Sen. Barack Obama for, in the words of McCain spokesman Tucker Bounds, "his ties to spiraling
lenders like Fannie Mae, Freddie Mac and their jet-set CEOs." But those articles did not note
that several senior McCain campaign aides have served as lobbyists for Fannie Mae, Freddie Mac,
or both. According to a Media Matters for America search of the Senate Office of
Public Records' Lobbying Disclosure Act Database, they include:
- Political adviser Charlie Black, who lobbied for Freddie Mac from 1999 to 2004;
- National finance co-chairman Wayne Berman, who lobbied for Fannie Mae from 2004 to 2008 and
for Freddie Mac in 2004;
- Congressional liaison John Green, who lobbied for Fannie Mae from 2004 to 2007 and for
Freddie Mac in 2003;
- Arthur Culvahouse, who reportedly headed McCain's vice-presidential search team, lobbied for
Fannie Mae in 1999, 2003, and 2004; and
- William E. Timmons Sr., who reportedly "has been tapped by the McCain campaign to conduct a study in
preparation for the presidential transition," lobbied for Freddie Mac from 2000 to 2008.
Additionally, several media outlets have reported that McCain campaign manager Rick Davis previously
served as president of the Homeownership Alliance, a Washington-based advocacy group whose
founding members included Fannie Mae and Freddie Mac, which Media Matters has noted.
MYTH: Democrats sought to divert funding in the Emergency Economic Stabilization Act to
ACORN
On the September 29 edition of CNN's Lou Dobbs Tonight, host Lou Dobbs claimed:
"ACORN [Association of Community Organizations for Reform Now] stands to reap hundreds of
millions of dollars from a government bailout of Wall Street." Dobbs added later: "This is a
straightforward deal for ACORN and other groups, left-wing groups, set up by the Democratic
leadership of Congress. They're not interested in the bailout per se. They want to spread this
out, and many people believe that this bailout in part is dear to the Democratic leadership
because they want to advance a social agenda here as much as much as an economic bailout of Wall
Street." Numerous other media figures also reported the false claim that Democrats were
trying to steer money to ACORN. In(...)
Recommandations
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and reject those that you are not interested in
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