The Sound of One Hand Flinging Crap, or Fox, Wingers and the Red Herring Express

Monday, October 06, 2008 at 09:16 PM

Heard the one about how Clinton monkeyed with the law and caused the housing/mortgage/credit/stock market crisis? No? How about the one where Jimmy Carter did the same thing, but like 20 years earlier? Hey, did you hear that? It's crap whizzing by at the speed of light. Let's see if any sticks. Did you hear the one about how the crisis all stems from the fed government making banks issue mortgages based on the applicant's welfare benfits and unemployment benefits?

What's happening to this country right now is so sad that I've been unable to make myself write about it. Even though the WTW crew has been warning that this was coming, it's indescribably sad to see it arrive. Financial markets around the world tanked, historic drops in the Dow, jobs disappearing month after month, housing prices tanked, wages stagnant or falling, consumer credit about to bite soooooo many people in the butt (you really think that consumer debt defaults aren't going to spike up real soon?).....Happy Halloween. If only this was a trick for lack of a treat.

But partisanship and propaganda know no bounds, certainly not of decency. So the Fox folks and their friends from Coulter to the countless winger blogs continue to push this story that the mortgage crisis was originated by some Democrat who preceded our esteemed current president. Recently I came across a new wrinkle to these claims: that the federal government required mortgage lenders to consider an applicant's welfare benefits and unemployment benefits as assets enough to get a mortgage. It took a long time, but I tracked this claim back to Stan Liebowitz, a professor at the University of Texas at Dallas, writing in the New York Post in February of this year (Fox connection number 1). As far as I can tell, he's the first to publicize this accusation.

Now Professor Liebowitz, although pretty damned severe in his attitude toward community action groups and government lending regulations, appears to be a legitimate professor, and in areas other than the cause of the mortgage lending crisis seems to call for detailed analysis and careful inspection of all the available evidence. Yet his NY Post piece contains none of this. It's a series of assertions, including this, the crux of the claim:

No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: "discrimination may be observed when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants."

Some of these "outdated" criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant's ability to manage debt.

Now the propagandists from the conservative end of the sputum aren't exactly known for their energetic research. But, with the good Professor Liebowitz having pointed them at this nefarious "Manual" they rushed out and read it, or had someone read it for them, or something. Based on this Manual from the Boston Federal Reserve Bank, such luminaries as Fox News itself** and the inimitable Coulter thing soon latched onto it and began bleating into the prevailing wind of outrage that threatened to blow the Republicans generally, and conservative bleaters in particular, all to hell.
[**Note that the Fox piece is by none other than John Lott, a winger of some renown and disrepute. He is the reputedly sane author of Freedomnomics, for example, which argues, among many, many other things, that the market is pretty damn close to perfect, in large part because it gives such strong incentives to businesses to act honestly and ethically. He is also the same guy who invented a persona so he could go online and defend and praise the shit out of himself while pretending to be a former student of his. Existential, ain't it? Or just plain narcissistic? Pretending to be this adoring ex-student, Lott repeatedly called himself every wonderful name he could think of, and gave a glowing review of his own book, to boot. His response when finally caught? This:
Lott said he initially used his own name in online debates with critics. 'But you just get into really emotional things with people. You also run into other problems.' So he started using the name Mary Rosh. 'I should not have done it, there is no doubt. But it was a way to get information into the debate.'
That's an excuse for writing a post under a pseudonym where he describes himself as:
...the best professor that I ever had. You wouldn't know that he was a 'right-wing' ideologue from the class. . . . There were a group of us students who would try to take any class that he taught. Lott finally had to tell us that it was best for us to try and take classes from other professors more to be exposed to other ways of teaching graduate material.
Right winger to the core: invent someone to love you, to sing your praises to the rest of the world. And clearly it was crucial to "the debate" that he describe himself as the most incredibly popular professor in the whole f'ing place.

But I digress.]

And they thought they had found propagandist heaven. Why, the Boston Fed Manual actually talked about welfare benefits--welfare benefits--as income for purposes of obtaining a mortgage. And how did our intrepid propagandists describe this part of the manual? The Coulter item said:
Instead of looking at "outdated criteria," such as the mortgage applicant's credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named "Caylee."

Threatening lawsuits, Clinton's Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn't a joke -- it's a fact.

According to Lott:
The Boston Fed still used the study to produce a manual for mortgage lenders that said: "discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower–income minority applicants."

So what were some of the "outdated" criteria?

Credit History: Lack of credit history should not be seen as a negative factor.... In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts....

Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership by lower-income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. . . .

Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.

Accepting these new criteria was hardly voluntary. The Fed warned the banks:

"Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions."

In CoulterLottLand, of course, objects may be closer to fantasy than they appear. So I took the incredible step of consulting the Boston Fed Manual that has all these crazy--just C R A Z Y-- things in it. You can read it, too, here.

First, it's titled {Closing the Gap:} A Guide to Equal Opportunity Lending. And it's a guide, not a set of regulations. The Foreword describes its purpose:

The Federal Reserve Bank of Boston wants to be helpful to lenders as they work to close the mortgage gap. For this publication, we have gathered recommendations on “best practice” from lending institutions and consumer groups. With their help, we have developed a comprehensive program for lenders who seek to ensure that all loan applicants are treated fairly and to expand their markets to reach a more diverse customer base.
The substance of the manual is presented as "Recommendations" in the following terms:

The recommendations that follow were gathered from a variety of sources, including mortgage lenders, bankers’ associations, credit counseling agencies, fair housing organizations, and social research groups. All of these organizations agree that an effective strategy for equal opportunity in lending must be driven by economic, social, and legal incentives. They also believe that each institution must develop its own strategy, based on local market dynamics, and that this strategy must be comprehensive, flexible, and integrated into daily business operations.
Keep that in mind.

Then we get to the part of the manual that talks about underwriting standards and practices, where the piece on welfare benefits appears. Before getting to the description of sources of income, the manual states:

The Board of Directors should establish a policy to detect and eliminate biases in underwriting standards and practices. As part of this policy, management should be directed to review existing underwriting standards and practices to ensure that they are valid predictors of risk.
Get that? " ensure that they are valid predictors of risk." In other words, if the bank's existing underwriting standards are "valid predictors of risk," that's fine.

Then, finally, the manual talks about sources of income in that context, with income sources being one of the underwriting standards:

Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
Coulter's hyperbolic claim that the Fed "demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage" seems to be...untrue. The Manual DOES NOT require that mortgage loans be approved for people whose only income is from these sources, nor, in fact, does it require that any particular role be given to those sources. It notes what Fanny/Freddy "will accept" as income sources. In other words, if your bank wants to consider the listed items as income, Fanny/Freddy will consider the mortgage a proper one for purchase.

As for the "threats" and "warnings" if banks did not "comply" with these demands, the "warning" that Lott cites--the statement of penalties for violating the Equal Credit Opportunity Act--this appears as a sidebar on page 10 of the manual. The text talking about welfare benefits appears on page 13. And, as I already said, there is nothing to indicate that the manual considers failure to treat welfare benefits and unemployment benefits as qualifying income violates any law at all.

CoulterLottLand facts. God love 'em, no one else will. Of course, these painted ladies of the perpetual political night know that hardly anyone is as stupid as I am, damned near nobody is going to track down that manual, read it, read what the clowns said, and compare them in detail. So I look forward to more passionate claims that all that collapses is Democratic, while all that rises and shines is Republican. In CoulterLottLand.

Now, back to the soothing sounds of the slow collapse of almost everything. Where I can listen on Fox--true story--and hear someone actually say that the silver lining to today's stock market meltdown is that things are much worse in Europe. Drawing the response that it's good to be "in America" or "an American," today. I couldn't tell which was said. I think I was retching by that point.