Clinton's Subprime Souffle
Social Engineering: It's official: Americans have lost their housing gains since '95, when Bill Clinton launched his homeownership crusade. His lending rules artificially created demand and a housing bubble that's still deflating.
A new Census Bureau report shows the share of Americans who own their homes in the first quarter was 64.8%, down from 65.2% in the previous three months and the lowest since the second quarter of 1995, when it was 64.7%.
It was then that Clinton announced his national drive to expand mortgage lending for first-time homebuyers with low income and shaky credit.
Through a series of regulations and policies that remained in place in the run-up to the housing crisis, he pushed private lenders to underwrite loans for people who couldn't normally afford a home. At the same time, he ordered Fannie Mae and Freddie Mac — whom he called major partners in his crusade — to buy, bundle, securitize and guarantee them.
His aggressive campaign turned what had been fringe lending for high-risk borrowers into a mainstream, lucrative market. In fact, Clinton created the subprime mortgage and securities markets on Wall Street, something he and his aides bragged about at the time.
As government data show the subprime souffle that Clinton created collapsing, his library is making public documents that memorialize his National Homeownership Strategy.
"We have effectively stopped the slide in homeownership that plagued America in the 1980s and early 1990s," Clinton said in a 1996 speech. "We are on course to meet the goal we set when we announced our homeownership strategy . . . a national homeownership rate of 67.5% — the highest in our country's history."
He hit that mark in early 2001. Three years later homeownership set a record of 69%.
But that was the height of the Clinton subprime souffle. It's been all downhill from there.
Sadly, his affordable-housing policies have backfired on the very groups they were designed to help most.
Above all, Clinton hoped to close the homeownership gap between whites and blacks. After he pressured banks and Fannie and Freddie to ease lending rules, black ownership rates shot up to record levels.
The media at the time attributed the growth to the "first real enforcement of the Community Reinvestment Act," an anti-discrimination law regulating mortgage lending. Harvard found that, thanks in large part to such policies, minorities accounted for nearly half the growth in homeownership from 1995 to 2005.
Only, as home prices cratered, minority ownership rates proved unsustainable. Today, the gap with whites is just as wide as it was two decades ago.
Millions have lost their homes. Widespread foreclosures have drained some $350 billion in wealth from communities of color. While the nation endured a recession, these areas have suffered a depression.
In the end, Clinton's housing policies did no one any favors. He turned the American Dream into a nightmare for many minorities and devastated the housing sector.
"Our homeownership strategy will not cost the taxpayers one extra cent," Clinton promised during a White House ceremony attended by Acorn officials.
This was perhaps Slick Willie's most pernicious lie.
Because his housing program was subsidized by the private bankers he drafted, he was technically correct. But when his policies eventually brought down Fannie and Freddie and Wall Street with them, taxpayers ended up footing a massive bailout.
Today, Clinton faults President Bush, Republicans, "greedy" Wall Street bankers and everybody but himself for the housing debacle.
But he has only his own half-baked policies to blame.
Originally published in Investors Business Daily.
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