Clinton and the Community Reinvestment Act

I received an e-mail from a friend, which claimed that the cause of the mortgage and financial market meltdowns was Bill Clinton, using the Community Reinvestment Act to push lenders into making more unsafe mortgages back in 1999. I replied as follows:

Clinton may have done things in 1999 that contributed to the problem, but we had eight years of George W. Bush as president, most of those years with Republicans also in control of Congress. Why was nothing done in the interim to address the issue? Instead, we had a hands-off approach to regulation, which rather than fixing the problem, allowed it to mushroom. People warned for several years that predatory lending practices and expansion of non-traditional mortgages (like variable rate, balloon, and interest-only) were setting us up for problems.

Flat incomes (except for people at the very top), slow job growth, and variable rate mortgages all set the stage. When unemployment increased, and the interest rates increased on those variable rate mortgages, and the mortgage holders were unable to re-finance with affordable fixed rate mortgages, that started the landslide. You cannot blame all that on Bill Clinton pressuring lenders to offer more mortgages to low income borrowers.

If you have a house you got from me eight years ago, and it is now breaking down, don't lay all the blame on what I did before I sold it to you. You've had ample time and opportunity to correct those problems.

Maybe my memory is faulty, but I seem to recall that when there was an increase in foreclosures, that the Democrats in Congress proposed a moratorium on foreclosures along with measures that would have forced lenders to renegotiate mortgages on more favorable terms, keeping interest rates down, etc.. What was happening was that as interest rates got kicked up on variable rate mortgages, many borrowers who had been fine at the lower rates, could no longer make their payments.

If the lenders had been forced to keep the foreclosures and rates down, that might have kept the mortgage derivative market from melting down. The administration and congressional Republicans fought the measure, and it was obvious that even with a Democratic majority in Congress, that could not be passed. The Republicans said 'the market knows best and is self regulating, and can deal with the problem'. So instead we had 'voluntary' mortgage renegotiations, which meant nothing materially changed. I'll contend that the Democratic proposal would have kept today’s problem from being as bad as it became.