by John Ruskin
The Independent Institute recently cited a New York Post article by Stan Liebowitz that sheds light on the real causes of the mortgage problem. According to the Institute:
The mortgage crisis did not materialize unexpectedly. Many who blame mortgage bankers for their aggressive lending practices have ignored the political pressures they faced, which prompted them to make home purchases (but not necessarily long-term home ownership) more viable for larger numbers of buyers by weakening their lending standards. According to University of Texas at Dallas economist Stan Liebowitz, legislation such as the Community Reinvestment Act, activist groups such as ACORN, and even the Federal Reserve Bank of Boston are culpable for having encouraged lenders to reach out to those for whom home ownership had been out of reach.
False accusations of institutional racism—accompanied by threats to impose penalties or to block bank mergers—pressured lenders to loosen their “outdated” underwriting criteria—for payment-to-income ratios, credit and savings history, and income verification—which had previously disqualified many lower-income loan applicants. In 1992, the Boston Fed published an influential study saying that lenders exhibited racial bias, but Liebowitz found its claim to be unfounded.
“That study was tremendously flawed—a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates,” Liebowitz writes in the New York Post. “Our study found no evidence of discrimination. Yet the political agenda triumphed—with the president of the Boston Fed saying no new studies were needed, and the U.S. comptroller of the currency seconding the motion.”
Liebowitz's article “The Real Scandal: How Feds Invited the Mortgage Mess,” can be found here.
