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The Never-Ending Search for Suspects

Did HUD cause the subprime mortgage meltdown? That’s the latest salvo in the fight over who should take responsibility for the housing crisis, straight from a front page Washington Post story earlier this week. With all the attention on former veep vetter and Fannie Mae CEO Jim Johnson, it seems to have been overlooked. But the HUD-did-it theory is worth noting, because it’s part of an increasingly bitter ideological divide over assigning blame to the subprime mess.

The Post piece says HUD pressured Fannie Mae and Freddie Mac to buy more affordable loans made to low-income and minority borrowers, thereby encouraging the growth of the subprime market. As The Big Picture points out, however, the story goes on to reverse itself, saying HUD later issued warnings about high foreclosure rates and predatory abuses with subprime mortgages and restricted Fannie and Freddie from buying the loans.

You could chalk all this up to just another news story that doesn’t make much sense, but there’s more to it. Blaming someone - anyone - for the housing crisis is the latest trend. Before HUD’s turn, fingers pointed at the Community Reinvestment Act, a 1977 law aimed at restricting redlining and requiring banks to provide affordable mortgage loans and other kinds of credit. Under the CRA-did-it theory, banks were forced to make subprime loans to meet the goals of that law.

The CRA theory never made much sense, considering the law called for banks to make sound, affordable loans, not high-rate, abusive ones. The HUD theory is nonsensical at well. There are many, many things for which to blame HUD, from the latest scandal involving former Secretary Alphonso Jackson to the mess its subsidies made of urban neighborhoods in the 1970s. But the mortgage crisis? That’s a huge stretch, as The Big Picture points out. HUD had nothing to do with the kind of loans that have led directly to this crisis, such as interest-only mortgages and loans with no downpayments or verifications. And there are plenty of other villains, The Big Picture explains:

The current housing and credit crises was caused by many factors, but the primary ones have to be the Greenspan Federal Reserve which had abdicated its regulatory responsibility to supervise banks, and a banking industry which forgot what lending standards were for. The securitization process, corrupt ratings agencies, and a lack of Wall Street due diligence are the next level. A false belief that Housing Prices never decline also gets some blame. At the real estate level, Appraisal fraud, buyer foolishness, and financial ignorance also contributed.

But HUD as a primary cause of the crisis? Puh-leeze!

Well, I couldn’t have said it any better. I’d like to think this misguided gotcha game will end soon, but that’s not likely. The worse the crisis gets, the more desperate the search for suspects fitting a particular ideological viewpoint will become, on both sides of the divide. This serves no one particularly well, but it’s the same kind of diversion that fosters conspiracy theories and urban myths, the sort of thing people do when they consider the problems around them as too overwhelming to comprehend.

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