In 2002-2004, George W. Bush actively campaigned for zero down and zero doc mortgages in the name of closing the racial gap in minority homeownership. This sent a big signal to the financial industry that federal financial regulators would not be actively enforcing traditional lending standards.
The Housing Bubble took off in 2004, helping Bush get re-elected, with his share of his strategically treasured Hispanic vote up from about 35% in 2000 to 40% in 2004 as Hispanics got more mortgages and more jobs as construction workers and home improvement fixer-uppers.
This is similar to how Richard Nixon had his friend Fed Chairman Arthur Burns inflate the money supply in 1972 so he could get re-elected. The interesting thing, though, is that Bush appears to have been largely uncynical. If the month after his re-election, Bush had signaled to the Executive Branch and to the industry that they shouldn't be quite so lax on mortgage standards any more, there wouldn't have been a mortgage meltdown.
But he wasn't that cynical. He drank his own Kool-Aid.
DataQuick reports on California mortgages:
You'll notice that the default percentages should run in the opposite direction: "Of cars built in 2004, 8.5% are no longer running, while of cars built in 2005, 4.9% have been disposed of, but less than one percent of 2006 cars are now out of action." That makes sense. Instead, "scraping the bottom of the barrel" is the best single explanation of the 2004 to 2006 trend.
The people who bought in California in 2004 weren't quite so sterling credit prospects as this makes them look. They bought at lower prices than the classes of 2005 and 2006, and had more chance to get out from under their mortgages by selling while still above water rather than defaulting.
But housing prices in California more or less plateaued in later 2005 through 2006, so the worse performance of 2006 borrowers compared to 2005 reflects, in part, bottom-scraping.
Still, the take-away message is that the class of 2005 included a lot of people who couldn't qualify for a loan in 2004. And the class of the first half of 2006 included people who couldn't qualify for a loan even in 2005. And the class of August-November 2006 included a fair number of people who couldn't normally borrow a cup of sugar from their neighbor.
The Housing Bubble took off in 2004, helping Bush get re-elected, with his share of his strategically treasured Hispanic vote up from about 35% in 2000 to 40% in 2004 as Hispanics got more mortgages and more jobs as construction workers and home improvement fixer-uppers.
This is similar to how Richard Nixon had his friend Fed Chairman Arthur Burns inflate the money supply in 1972 so he could get re-elected. The interesting thing, though, is that Bush appears to have been largely uncynical. If the month after his re-election, Bush had signaled to the Executive Branch and to the industry that they shouldn't be quite so lax on mortgage standards any more, there wouldn't have been a mortgage meltdown.
But he wasn't that cynical. He drank his own Kool-Aid.
DataQuick reports on California mortgages:
Of the 3.7 million home loans made in 2004, less than 1 percent have since resulted in a lender filing a default notice. Of the 3.7 million loans originated in 2005, 4.9 percent have triggered a default notice so far. Of the 3 million in 2006, 8.5 percent have so far resulted in default. A particularly toxic period appears to have been August through November 2006 which had more than a 9 percent default rate. Of the 2.1 million loans made in 2007, it's 4.6 percent - a percentage that's likely to rise significantly during the rest of this year.
You'll notice that the default percentages should run in the opposite direction: "Of cars built in 2004, 8.5% are no longer running, while of cars built in 2005, 4.9% have been disposed of, but less than one percent of 2006 cars are now out of action." That makes sense. Instead, "scraping the bottom of the barrel" is the best single explanation of the 2004 to 2006 trend.
The people who bought in California in 2004 weren't quite so sterling credit prospects as this makes them look. They bought at lower prices than the classes of 2005 and 2006, and had more chance to get out from under their mortgages by selling while still above water rather than defaulting.
But housing prices in California more or less plateaued in later 2005 through 2006, so the worse performance of 2006 borrowers compared to 2005 reflects, in part, bottom-scraping.
Still, the take-away message is that the class of 2005 included a lot of people who couldn't qualify for a loan in 2004. And the class of the first half of 2006 included people who couldn't qualify for a loan even in 2005. And the class of August-November 2006 included a fair number of people who couldn't normally borrow a cup of sugar from their neighbor.
My published articles are archived at iSteve.com -- Steve Sailer
with his share of his strategically treasured Hispanic vote up from about 35% in 2000 to 40% in 2004...
ReplyDeleteA majority!!!
If the month after his re-election, Bush had signaled to the Executive Branch and to the industry that they shouldn't be quite so lax on mortgage standards any more, there wouldn't have been a mortgage meltdown.
ReplyDeleteWe had to have people to take out loans they wouldn't pay.
But we also needed people who were more willing than most to walk away from their financial obligations.
And we needed more people, period, with cheap money in hand to drive the price bubble (cheap money >>> inflation).
And we needed people to build the homes that were supposedly needed to fill demand.
A lot of these people were the same people.
Funny how that works.
The interest alone on the stimulus package and bank bailout now exceeds the estimated annual contribution of illegal immigrants to the economy.
"In 2002-2004, George W. Bush actively campaigned for zero down and zero doc mortgages in the name of closing the racial gap in minority homeownership."
ReplyDeleteSo were the banks required to make these loans or were they just making those loans because they had the ability to securitize the loans and bass the buck?
Still, the take-away message is that the class of 2005 included a lot of people who couldn't qualify for a loan in 2004. And the class of the first half of 2006 included people who couldn't qualify for a loan even in 2005. And the class of August-November 2006 included a fair number of people who couldn't normally borrow a cup of sugar from their neighbor. Actually a lot of the bad loans in 2005 and 2006 were people who got loans they couldn't afford in 2004 (and earlier) and then refinanced (sometimes taking cash out) into loans they really couldn't afford in 2005 and 2006. This could only go on as long you could at least pretend housing prices were going up.
ReplyDeleteSo were the banks required to make these loans or were they just making those loans because they had the ability to securitize the loans and bass the buck?The latter, as Steve has emphasized. Bush's signal unleashed the moral hazard latent in all financial institutions: take huge risks now, cash out, leave the future mess for others to clean up.
ReplyDeletePlus, banks have long been trained to be amenable through the power of CRA regulations over bank mergers and aquisitions. If you won't play ball, your bank eventually will be bought by bankers who will.
That's the problem with Fan & Fred, they were a shadow central bank.
ReplyDeleteIn 2002-2004, George W. Bush actively campaigned for zero down and zero doc mortgages in the name of closing the racial gap in minority homeownership.Bush is a true believer in equality. For all the stupid raaaaaacism charges hurled his way, he was probably one of the few people you'd meet at that level who actually believes the races would be represented equally in everything if not for racism.
ReplyDeleteI don't think that makes him stupid, just a typical baby boomer.
"He drank his own Kool-Aid." That's the perfect comment about Bush not just on this subject, but on Bush and the Republicans the last 8 years.
ReplyDeleteOne thing that needs to be investigated more is the degree to which the federal folly was multiplied by similar state follies. As I write in the May "Chronicles" magazine (not online):
ReplyDelete"In October 2007, [Gov. Arnold Schwarzenegger] signed into law Senate Bill 385 which, in the summary of the governor’s office, would 'adopt emergency measures and new policies to ensure that all mortgage lenders and brokers are subject to federal guidelines on non-traditional mortgages.' We all now know that 'non-traditional mortgages' are those going to folks, often poor immigrants, who couldn't afford them, and who in 2008-09 (and beyond) would default on them en masse."
Somebody with more time than I have should investigate this matter further, not just for California, but for the other states hit hardest by foreclosures: Nevada, Arizona, and Florida.
Eric said:
ReplyDelete"I don't think that makes him stupid, just a typical baby boomer."Could also be his faith. A lot of Pentecostal/charismatic churches nowadays enforce racial equality in their congregations. It’s taken straight from scripture, though the passages they like to use are actually in a different context (usually referring to how Christ bridged the Jew/goy spiritual divide, which was/is a major topic in Judaism). One of the biggest pushers of the racial equality meme in South Africa is the Johannesburg-based Rhema Bible Church, which is a branch of the same original church in the US. I assume they have the same policies there in the US.