The Housing Crisis is Andrew Cuomo's Fault!

Monday, Arnold Kling pointed to an article from the Village Voice which puts much of the blame for the Subprime Crisis on the HUD.

Clinton HUD Sectary Andrew Cuomo comes in for a beating in this piece:

In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don't actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD's secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie.

Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible."

It’s interesting to me that for a long time, the populist criticism of banks was that they did not give out enough loans to poorer people. Now, the criticism of banks is that they gave out too many loans to poor people ("loans the banks knew could not be repaid").

Generally, on the subprime crisis, I tend to agree with John Taylor’s comment on EconTalk this week:

I think people are looking for problems with the markets when frequently it's
problems with people. It's dysfunctional people really who haven't don't the
right job. You have that when your have markets or don't have markets. I think
they (markets) have worked very well over this crisis.

Private markets have issues but generally they work. …I can’t help but think this situation would be much improved if the government didn’t try to manipulate the housing market to serve political purposes.