Video: Subprime loans "affirmative action" - Andrew Cuomo

Another lengthy video attempts to highlight the beginnings of the subprime loan disaster, and it’s well worth watching.  Andrew Cuomo, then Bill Clinton’s HUD Secretary, held a press conference on April 6, 1998, explaining a settlement reached with a major bank on a lending discrimination case based presumably on the CRA.  Cuomo brags about how “this administration will enforce the law”, but he also makes a very telling admission about the $2.1 billion in subprime loans that the bank would offer as a result of the settlement:

They would not have qualifed but for the affirmative action on the part of the bank, yes.

He then admits that there would be “higher risk”, and a higher default rate, on the loans the Clinton administration forced this bank to make. He also admits that the action forced this bank to lower its standards on loan qualification as a remedy to supposed discriminatory action in the past by relying on income and equity requirements. Cuomo describes everything wrong with subprime lending and reveals the government’s efforts to distort private lending markets to force “fairness” in outcomes.

The financial world did not collapse because of 15,000 loans from this one settlement, but this case did not exist in isolation.  Cuomo held this press conference as a warning to all lenders that the Clinton administration intended to enforce the CRA broadly with all lenders, and in fact he explicitly stated this.  When that didn’t free up credit as quickly as Clinton desired, he and Congress mandated Fannie Mae and Freddie Mac to purchase more subprime paper — which Cuomo baldly admitted was riskier and would have a higher rate of failures — and to turn them into mortgage-backed securities, which they marketed as low-risk investments based on implicit government backing.

This did what the heavy-handed enforcement of the CRA could not: it made lenders enthusiastic about subprime lending.  Why?  They could make short-term profit on every mortgage regardless of the borrower’s ability to repay, because Fannie and Freddie would buy them anyway.  With the risk removed from lending, subprime loans became quick-buck rackets for all lenders, predatory or not.

The second half of the video relates what we already know about Barack Obama.  He sued Citibank to force more subprime lending, and his ACORN partners did the same elsewhere, initiating actions like the one Cuomo heralds here as a great breakthrough in affirmative-action lending.  Obama bears responsibility at the edges for the beginning of this disaster, and more for his inaction while in the Senate as Alan Greenspan warned them of the coming collapse.  Most of this falls on the Clinton administration and Congress in 1998-2000, who set this brush fire alight and then kept the firefighters at OFHEO at bay by calling them racists.