Opinion: Bursting the GOP’s housing bubble nonsense

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In Republican circles, one common assertion about the mortgage meltdown is that it was caused by the government -- specifically President Clinton and Democrats -- who forced banks to make loans to people they knew couldn’t pay.

This week, though, we were given proof that this assertion is -- what’s the legal term for it?; oh yea -- baloney: In New York, Citigroup Inc. agreed to a $158-million settlement with the Justice Department.

As The Times reported:

Citi admitted that it provided misleading information about the quality of its mortgages to a federal insurance program run by the Department of Housing and Urban Development. The government provided backing for the mortgages and ended up losing millions when the borrowers defaulted.

Notice that phrase: ‘misleading information about the quality of its mortgages.’


And who were some of these borrowers? Yep, you’re right, some were the folks Clinton and the Democrats wanted to help achieve the American dream of homeownership:

The government insurance allowed Citi to give cheaper loans to less-creditworthy borrowers and then to sell the loans to investors.

But is wasn’t the government forcing Citigroup’s employees to make bad loans. In fact, here’s what the government demanded:

The major banks were part of a program that allowed them to get automatic approval for government insurance for the mortgages they were issuing. As part of the program, the banks were supposed to aggressively pre-screen the mortgages to make sure they were not too risky and report any signs the mortgages were having trouble.

Hmmm. Wonder which part of ‘aggressively pre-screen the mortgages to make sure they were not too risky’ the bankers didn’t understand? Because here’s how they apparently did business:

The complaint said Citi systematically ignored these rules, leading the government to insure lower-quality loans. More problematically, employees in Citi’s mortgage unit are accused of asking members of the compliance department to not report problems with the mortgages to the government.

In legal circles, I think you call that ‘a smoking gun.’ I guess Citi thought so too, since it agreed to fork over $158 million.

Admittedly, this settlement is pretty small potatoes, given the enormity of the mortgage mess.

And yes, you can’t excuse people who took out mortgages they knew they couldn’t afford.

But can we at least stop spouting the nonsense that the government forced banks to make bad loans?

Clearly, that’s one claim that just doesn’t hold up in a real court, and it shouldn’t hold up in the court of public opinion either.


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