August 6, 2013

NYT: "Bush drive for home ownership fueled housing bubble"

For six years, I've been pointing out that the mortgage meltdown of 2007 that kicked off the great recession of 2008 was tied to George W. Bush's successful 2002-2004 push to make mortgages easier for minorities to obtain. But if you Google "White House Conference on Increasing Minority Homeownership," there's not much interest in Bush's role. The first two hits are government archives, and the third is my 9/24/2008 post of Bush's 10/15/2002 speech at his conference. 

Interestingly, though, the sixth hit is a New York Times article from two months later that I'd never seen before, which closely follows and validates much of my argument:
Bush drive for home ownership fueled housing bubble 
By Jo Becker, Sheryl Gay Stolberg and Stephen Labaton 
Published: Sunday, December 21, 2008 
WASHINGTON — "We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home." 
- President George W. Bush, Oct. 15, 2002 
... Eight years after arriving in Washington vowing to spread the dream of home ownership, Bush is leaving office, as he himself said recently, "faced with the prospect of a global meltdown" with roots in the housing sector he so ardently championed. 
There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk. 
But the story of how the United States got here is partly one of Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials. 
From his earliest days in office, Bush paired his belief that Americans do best when they own their own homes with his conviction that markets do best when left alone. Bush pushed hard to expand home ownership, especially among minority groups, an initiative that dovetailed with both his ambition to expand Republican appeal and the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards. 
Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal. And the regulator Bush chose to oversee them - an old school buddy - pronounced the companies sound even as they headed toward insolvency. 
As early as 2006, top advisers to Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. ...
And both Paulson and his predecessor, John Snow, say the housing push went too far. 
"The Bush administration took a lot of pride that home ownership had reached historic highs," Snow said during an interview. "But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost." 
For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security, a government retirement and disability benefits program. The housing market was a bright spot: Ever-rising home values kept the economy humming, as owners drew down on their equity to buy consumer goods and pack their children off to college. 
Lawrence Lindsay, Bush's first chief economic adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Bush meet housing goals. 
"No one wanted to stop that bubble," Lindsay said. "It would have conflicted with the president's own policies." 
Today, millions of Americans are facing foreclosure, home ownership rates are virtually no higher than when Bush took office, Fannie and Freddie are in a government conservatorship, and the bailout cost to taxpayers could run in the trillions of dollars. 
As the economy has shed jobs - 533,000 last month alone - and his party has been punished by irate voters, the weakened president has granted his Treasury secretary extraordinary leeway in managing the crisis. 
... Darrin West could not believe it. The president of the United States was standing in his living room. It was June 17, 2002, a day West recalls as "the highlight of my life." Bush, in Atlanta to introduce a plan to increase the number of minority homeowners by 5.5 million, was touring Park Place South, a development of starter homes in a neighborhood once marked by blight and crime. 
West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment - just the sort of creative public-private financing Bush was promoting. 
"Part of economic security," Bush declared that day, "is owning your own home." 
A lot has changed since then. West, beset by personal problems, has left Atlanta. Unable to sell his home for what he owed, he said, he gave it back to the bank last year. Like other communities across the United States, Park Place South has been hit with a foreclosure crisis affecting at least 10 percent of its 232 homes, according to Masharn Wilson, a developer who led Bush's tour. "I just don't think what he envisioned was actually carried out," she said. 
Park Place South is, in microcosm, the story of a well-intentioned policy gone awry. Advocating home ownership is hardly novel; Bill Clinton's administration did it, too. For Bush, it was part of his vision of an "ownership society," in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters. 
But for much of Bush's tenure, government statistics show, incomes for most families remained relatively stagnant while housing prices skyrocketed. That put home ownership increasingly out of reach for first-time buyers like West. 
So Bush had to, in his words, "use the mighty muscle of the federal government" to meet his goal. He proposed affordable housing tax incentives. 
He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending. 
Concerned that down payments were a barrier, Bush persuaded Congress to spend as much as $200 million a year to help first-time buyers with down payments and closing costs. 

This bill, which Congress passed in 2004, was largely symbolic, but symbolism is important.
And he pushed to allow first-time buyers to qualify for government insured mortgages with no money down. Republican congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as West did. Many economic experts, including some in the White House, now share that view. 
The president also leaned on mortgage brokers and lenders to devise their own innovations. "Corporate America," he said, "has a responsibility to work to make America a compassionate place." 
And corporate America, eyeing a lucrative market, delivered in ways Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment. But Bush populated the financial system's alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more. 
The president's first chairman of the Securities and Exchange Commission promised a "kinder, gentler" agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general's report. 
As for Bush's banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry.  
When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks. 
The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina's attorney general, said, "They took 50 sheriffs off the beat at a time when lending was becoming the Wild West."

State laws regarding lending, which tend to be older and less fashionable than federal laws, were generally better. They could make a difference, as the sharp distinction between Pennsylvania (strict regulations, fewer foreclosures) and Ohio (loose regulations, more foreclosures) showed.
The president did push rules aimed at requiring lenders to explain loan terms more clearly. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary. 
In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Bush's re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not complete the new rules until last month. 
Today, administration officials say it is fair to ask whether Bush's ownership push backfired. Paulson said the administration, like others before it, "over-incented housing."



Anonymous said...

This Wizard of Oz thinking on Bush's part was like in education: "You don't need a brain; here is a diploma".
In housing, Bush looked at a characteristic of home owners: stability. So.. he figured that if everybody got a home, they would become stable. What could go wrong?

Anonymous said...

Neocon doctrine: Export or apply your value on to others without considering their cultural or biological difference.

Steve in Greensboro said...

Let's not lose sight of the big picture. The bubbles that burst in 2007-2008 (both real estate and equities) were generated primarily by money-printing by the Fed. The activities of the GSEs (Fannie and Freddie) channeled the excess money supply into real estate.

As you rightly say "...This bill, which Congress passed in 2004, was largely symbolic..."

Bush (43) was a progressive and damaged America, but he was a bit-player in the 2007-2008 collapse, which was caused by the U.S. bureaucratic state and its tools (the Fed and the GSEs) all of which predated Bush by decades.

Anonymous said...

Well, Bush never had smarts, the best way was to cut immigration off, and Mexicans would move up the economic ladder instead of being maids and janitors for 30 years in a role. Its the stagnant population of Mexicans in Bushes own state of Texas, home ownership didn't make the Rio Grande richer, El Paso still have a high poverty rate, granted, it has dropped compared to Mcallen.

Anonymous said...

Bush would have been smarter to promote small business instead of home ownership. I read about a 2nd or 3rd generation Mexican couldn't find his own job, so started a wood making job that sells online. He liked the immigrant generation of Mexicans too much which usually hurts the 2nd and 3rd in the job market.

Anonymous said...

Mobile HOmes instead of tract houses are cheaper, granted there is rent involved because you rent a space. In fact Home owernship of this kind would work in California since they are Mobile Home parks but a recent park in Huntington Beach as going to include families and the 55 plus residents opposed it. Mobiles decline in value as they aged and many in Southern California are more affordable, and they are 3 bedroom mobiles, Hispanics would have to drop to 2 kids instead of 3 or 4.

Anonymous said...

Anaheim, CA is a city of 359,568 located in beautiful Orange County. The average sales price of a single-family home in Anaheim is $383,147 (July 2013), which when compared to the rest of Orange County, places the average cost of a single-family home in Anaheim at 50.46% lower than the county average. The average sale price per square foot for a home in Anaheim is $263, which is 32.39% lower than the rest of Orange County. There were 159 homes sold in Anaheim in July 2013. The most active city in the county was Irvine with 261 homes sold.

At the moment, First Team Real Estate has available 388 homes for sale and 44 homes for rent in Anaheim, including 0 foreclosures and short sales. The average listing price of a home for sale in Anaheim, CA is currently $414,891. Yes, the price is high for people's income but some of the buyers are investors that turn houses into rentals. Anaheim is 52 percent Hispanic, mainly Mexicans and many of them here illegality.

panjoomby said...

dude, i believed ya all along.
it's the ol' "gee, home owners are responsible citizens -- so we'll make more people into home owners -- that will make 'em responsible!" an actual legitimate case of confusing correlation with causation!

Anonymous said...

Mission Viejo, CA is a city of 94,158 located in beautiful Orange County. The average sales price of a single-family home in Mission Viejo is $591,968 (July 2013), which when compared to the rest of Orange County, places the average cost of a single-family home in Mission Viejo at 23.46% lower than the county average. The average sale price per square foot for a home in Mission Viejo is $319, which is 17.99% lower than the rest of Orange County. There were 145 homes sold in Mission Viejo in July 2013. The most active city in the county was Irvine with 261 homes sold.

At the moment, First Team Real Estate has available 366 homes for sale and 82 homes for rent in Mission Viejo, including 0 foreclosures and short sales. The average listing price of a home for sale in Mission Viejo, CA is currently $643,631.
Mission Viejo a much higher income almost 40,000 higher than Anaheim is selling houses for a higher price. This leads me to believe that the current practices not as bad as the Bush years since Anaheim and Mission Viejo pricing is much more different than when the Housing Boom went on.

Anonymous said...

'This Wizard of Oz thinking on Bush's part was like in education: "You don't need a brain; here is a diploma".'

I love the Oz reference. It really nails the point. During his presidency, Bush consistently perceived the causal arrows pointing in the wrong direction. But his logical errors got him reelected and paved the way for Obama to become our first culturally Marxist chief executive who gave real power to the Federal bureaucracy to persecute and disadvantage the white middle class. Bush is the chief executive who keeps on subtracting. And if Amnesty 2013 sneaks through, he can take the debit for that, too.

Anononymous said...

If someone is renting, the money goes to some loser native who owns a few houses. If they 'own' their home, the mortgage money goes to a bank.

And what could be more republican than to use government to send more money to big banks?

Anonymous said...

One argument that is often used against the claim that the push for minority home ownership was a factor in the financial crisis is the fact that they had housing bubbles in Europe as well, for example in Spain, and that our CRA could hardly have had anything to do with that. I'd be very interested to hear your thoughts on this argument.

My own vague thinking is that the root cause of the crisis was not the CRA, but deregulation, both here and in Europe. Lack of regulation encourages irresponsible and abusive lending, and that is what led to the crises. The difference between America and Europe is that in America much of that lending was to minority home buyers, while in Europe it was something else (and I simply don't know enough about the European situation to speculate what that something else might have been). If I'm right, the CRA did have a role to play, but it was not the root cause.

Derek Brown said...

However part of the push for home ownership was motivated by 2nd wave social science flowing from the Broken Windowd theory which suggested that owning vs. renting did decrease vandalism and instability so it wasnt just cargo cult sociology. Of course now that the media opposes that program must we now look for its good side like we did Mugabwe.

pat said...

I used to be a housing expert of sorts. I took Housing as a subject in grad school. I - like all the other planning students - developed a 'Housing Model'. I got a Mellon Fellowship to create a housing analysis for the National Capitol Planning Commission the next semester. I then worked for the Washington Metropolitan Council of Governments on housing issues as an intern.

So about the time I graduated I was very current with all the latest governmental thinking on housing.

So I've never been surprised at how stupid our housing policies have been. The whole field is filled with people who you would think were characters from "Idiocracy".


Anon87 said...

Related: Obama calls for phase-out of mortgage giants Fannie and Freddie

Whitehall said...

Bush II was sometimes too kind-hearted (ie compassionate) for our own good.

I too remember his boasting of increased home ownership in one of his speeches.

On the other hand, the Republicans in Congress and in the Administration tried to rein in Freddie and Fannie, but to no avail.

jody said...

good thing they're not doing exactly the same thing all over again in 2013.

oh wait.

tommy shanks said...

>>From his earliest days in office, Bush paired his belief that Americans do best when they own their own homes with his conviction that markets do best when left alone. Bush pushed hard to expand home ownership, especially among minority groups...

So Bush didn't leave markets alone. Sentence 2 is a direct contradiction of Sentence 1.

The article even describes one of the market distortions:

>>West had patrolled there as a police officer, and now he was the proud owner of a $130,000 town house, bought with an adjustable-rate mortgage and a $20,000 government loan as his down payment - just the sort of creative public-private financing Bush was promoting.

Nothing says "free market" like a government-provided down payment.

Who cares about contradictions though? Everyone knows the Narrative is, "Republicans are for free markets, and free markets inevitably produce crises."

Anonymous said...

Well, I don't believe that Obama is a Marxist, he didn't even do a single payer healthcare. Obama knew Frank Marshall Davis as a kid but is not as radical as some believe. The Marxist stuff goes from John Drew a Tea Party patriot that met Obama in College in the early 1980's, Drew is a bit suspect, Drew is connected with the Orange County birther lady that started everything on Obama.

Jon said...

Right-wingers Want To Erase How George Bush's "Homeowner Society" Helped Cause The Economic Collapse

2004 Republican Convention:

Another priority for a new term is to build an ownership society, because ownership brings security and dignity and independence.

Thanks to our policies, home ownership in America is at an all- time high.


Tonight we set a new goal: 7 million more affordable homes in the next 10 years, so more American families will be able to open the door and say, "Welcome to my home."


Dubya was warned by the FBI of an "epidemic" of mortgage fraud in 2004. He gave them less resources. Later in 2004 Dubya allowed the leverage rules to go from 12-1 to 33-1 which flooded the market with cheap money!

Predatory Lenders' Partner in Crime

Predatory lending was widely understood to present a looming national crisis.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge?

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative

Jon said...

GSE Critics Ignore Loan Performance

There is no data anywhere to cast doubt on the vastly superior loan performance of the GSEs. Year after year, decade after decade, before, during and after the housing crash, GSE loan performance has consistently been two-to-six times better than that of any other segment of the market. The numbers are irrefutable, and they show that the entire case against GSE underwriting standards, and their role in the financial crisis, is based on social stereotyping, smoke and mirrors, and little else.

Private sector loans, not Fannie or Freddie, triggered crisis

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets

Most subprime lenders weren't subject to federal lending law

Community Reinvestment Act, blamed for home market crash, didn't apply to the banks that did the most lending.