The Blog @ Spolitics

Did Affirmative-Action-Style Lending Help Cause the Mortgage Crisis?

According to an article in today’s WaPo, since 1995 HUD has pushed a policy designed to help minority and low-income borrowers get sub-prime loans.  As their “goals” (read: quotas) rose, lenders continually lowered their standards to meet them and Fannie and Freddie were on the hook to buy those loans, thus feeding the sub-prime market. 

The market knew we needed those loans,” said Sharon McHale, a spokeswoman for Freddie Mac. The higher goals “forced us to go into that market to serve the targeted populations that HUD wanted us to serve,” she said.

The Clinton and Bush administrations pushed a policy aimed at increasing the minority homeownership rate at the expense of the overall market and now the market is paying the price for it.  The irony is that with lending guidelines tightening, it’s going to be harder for everyone — including lower-income borrowers — to get a loan.  This is the perfect example of the government creating a market where there was none and pushing good intentions over common sense and sound fiscal discipline.  As usual with those kinds of policies, they will have achieved the opposite of their goal.