Staking The Vampire Lie On The Housing Crisis

Over at Barry Ritholz's place, Center for American Progress economist David Min sharpens up a couple sequoia trees' worth of evidence and drives them into the heart of the vampire lie that federal regulators forcing banks to make subprime loans to poor minorities caused the financial meltdown.  Min takes the lie to school, along with one of its main authors, American Enterprise Institute flack Peter Wallison.

So how did Wallison get to the conclusion that it was federal affordable housing policies that caused the crisis, despite the countervailing evidence? As Phil Angelides, chairman of the FCIC, has stated, “The source for this newfound wisdom [is] shopworn data, produced by a consultant to the corporate-funded American Enterprise Institute, which was analyzed and debunked by the FCIC Report.”

Angelides is of course referring to Wallison’s AEI colleague Edward Pinto. Wallison’s conclusion that federal affordable housing policies are primarily responsible for the financial crisis is based entirely on the research conclusions of Pinto, who finds that there are 27 million “subprime” or “high-risk” loans outstanding, with approximately 19.25 million of these attributable to the federal government’s affordable housing policies. As I point out in “Faulty Conclusions,” Pinto only gets to these numbers (which are radically divergent from all other estimates—for example, the nonpartisan Government Accountability Office estimates that there are only 4.59 million high-risk loans outstanding) by making a series of very problematic and unjustified assumptions.

Case in point: To support his claim that the Community Reinvestment Act, which requires regulated banks and thrifts to provide credit nondiscriminatorily to low- and moderate-income borrowers, caused the origination of 2.24 million outstanding “high-risk” mortgages, Pinto includes many loans originated by lenders who were not even subject to CRA. In fact, most of the “high-risk” loans Pinto attributes to CRA were not eligible for CRA credit.

Similarly, in arguing that Fannie and Freddie’s affordable housing goals caused the origination of 12 million “subprime” and equivalently “high-risk” loans, Pinto includes millions of loans that would not typically qualify for those goals. In fact, the vast majority (65 percent) of the “high-risk” loans Pinto attributes to the affordable housing goals of Fannie and Freddie fall into this category.

The Community Reinvestment Act has time and time again been dragged out as the "real cause" of the housing depression because banks were supposedly forced into giving mortgage loans to minorities who couldn't afford the payments.  I talked about this in detail here, the pernicious revisionist idiocy that it wasn't Wall Street greed but awful poor black people who decimated the housing market has been a lie the right has been telling since Obama was elected.

David Min brings the hard numbers in his paper to disprove this stupidity, and while it gets into the weeds on the issue, it's worth reading if only for the blatant disregard of the facts involving banks, the subprime loans they made to minorities at much higher rates, and that fact that a massive majority of the mortgage boiler room shops that made these loans were not subject to the CRA at all.

Yes, it's an ugly, horrible, self-serving racist lie.  But the right doesn't care.  Only "winning" matters.