14 November 2009

Housing Bubble Collapse: ACORN @ Eye of the Storm

Barack Obama's favourite corrupt government contractor -- ACORN -- sits squarely at the center of causation of the great 2009 Obama depression and economic collapse. It makes for an interesting story, but one that you will never hear from today's White House, or its extended public relations department -- the mainstream media.

The problem started in 1977 with Jimmy Carter's Community Reinvestment Act.  Then in the 90s, Congress empowered more loose-lending practises via the 1992 GSE, and further rule-loosening via Fannie Mae and Freddie Mac.  Finally, Bill Clinton open the floodgates of loose lending, via executive order, near the end of his last term.  By the time George W. Bush heard the ticking of the home lending time bomb, it was too late to stop the train wreck. [ Bush tried to stop it in 2003, but Bush only had bicameral majorities four out of his eight years, and never had control of Congress in the overwhelming numbers that Obama does.]

From the WSJ:
All agree that the bursting of the housing bubble caused the financial collapse of 2008. Most agree that the housing bubble started in 1997. Less well understood is that this bubble was the result of government policies that lowered mortgage-lending standards to increase home ownership. One of the key players was the controversial liberal advocacy group, Acorn (Association of Community Organizations for Reform Now).
ACORN was deputized to help write the statutory regulations that set mandates for affordable housing. ACORN further lobbied its congressional heavyweights sitting on banking and finance committees to put pressure on banks, to force them to accept unsound loans.
...As a result of congressional and regulatory actions, the percentage of conventional first mortgages (not guaranteed by the Federal Housing Administration or the Veteran's Administration) used to purchase a home with the borrower putting 5% or less down tripled from 9% in 1991 to 27% in 1995, eventually reaching 29% in 2007.
Fannie and Freddie acquired $1.2 trillion of loans from banks and other lenders from 1993 to 2007. This amounted to 62% of all such conventional home purchase loans with a down payment of 5% or less that were originated nationwide over the same period.

Fannie and Freddie also acquired $2.2 trillion in subprime loans and private securities backed by subprime loans from 1997 to 2007. Acorn and the other advocacy groups succeeded at getting Congress to mandate "innovative and flexible" lending practices such as higher debt ratios and creative definitions of income. And the serious delinquency rate on Fannie and Freddie's $1.5 trillion in high-risk loans was 10.3% as of Sept. 30, 2009.

This is about seven times the delinquency rate on the GSEs' traditional loans. Fifty percent of the high-risk loans are estimated to be CRA loans, with much of the remainder useful to the GSEs in meeting their affordable-housing goals.

The flood of CRA and affordable-housing loans with loosened underwriting standards, combined with declining mortgage interest rates—to 5% in 2003 from 10% in early 1991—resulted in a massive increase in borrowing capacity and fueled a house price bubble of unprecedented magnitude over the period 1997-2006.

Now this history may repeat itself as many of the same community groups are pushing Congress to expand CRA to cover all mortgage lenders, credit unions, insurance companies and others financial industry segments. Are we about to set the stage for another catastrophe? _WSJ
It is not a question of "if", but of "when" history will repeat itself. Most of the same idiots are sitting on the same banking committees, in positions of even more power to force the banks to do their will -- now that they have "bailed out" the banks once.

President Obama has long and close ties to ACORN. ACORN helped put Obama in the White House, so he will find it difficult to deny the quasi-criminal organisation anything it asks for.

If that means being complicit in blowing up another housing bubble-within-a-bubble, and initiating yet another economic crisis, well, there's still a former president who can be blamed. The current clown president's core constituency will believe anything the green rookie says. If he tells them __it is peanut butter, they will gobble it right up.

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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