Barney Frank Says Race a Factor in Subprime Blame Game

By Natalie Gewargis

Oct 7, 2008 10:00am

The Chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., yesterday said Republicans are misplacing blame when they target Democrats’ efforts to expand affordable housing — and Frank alleged there was a racial component to the criticism.

"They get to take things out on poor people," Frank said at a mortgage foreclosure symposium, as reported by the Associated Press’s Glenn Johnson. "Let’s be honest: The fact that some of the poor people are black doesn’t hurt them either, from their standpoint. This is an effort, I believe, to appeal to a kind of anger in people."

Frank, in August, told CNN that a new guiding principle for the housing market should be "we basically have to tell people who want to make mortgage loans something terribly radical: Do not lend money to people who can’t pay it back."

Asked how the U.S. mortgage market got to this horrible place, Frank said, "We had too little regulation at a point of great financial innovation. Twenty years ago, most loans were made by someone who expected to be paid back by the borrower. And lenders who want to be paid back by the borrower are careful about who they lend to. Then came this great innovation called securitization. Securitization means that I lend you money and quickly sell the right to be paid back by you to other people. Well, when the lender ceased to have an ongoing relationship with the borrower, a tremendous amount of banking discipline was lost. And it was much harder to replace than we thought."

Why didn’t regulators step in?

"Back in 1994, Congress gave the Federal Reserve the authority to ban irresponsible mortgages," Frank said. "Alan Greenspan, as a very committed anti-regulation conservative, refused — literally refused — to use that authority. Congress can give people authority; we can’t compel them to use it. Ben Bernanke, to his credit, realized that it was time to use that authority. So he promulgated a set of rules on July 14 of this year to prohibit a lot of the mortgages of the type that got us in trouble. If Alan Greenspan had done 10 years ago what Ben Bernanke did this past July, we would have much less of a problem in subprime mortgages…

"We have made a mistake in this society. The assumption that everybody can be a homeowner is wrong. We pushed and encouraged people into home ownership — people who, in some cases, weren’t ready for it. You can’t act on wishes that are unrealistic without having negative consequences."

**

On that topic, the video of a "Saturday Night Live" skit that mocked Frank and criticized Democrats and some mortgage owners for their roles in the housing and financial crisis, has been removed from NBC’s Web site, prompting myriad conspiracy theories among the conservative blogosphere.

(You can read a transcript of the skit HERE or watch a version of it HERE.) The skit singled out for ridicule Herb and Marion Sandler, who sold their savings-and-loan Golden West to Wachovia for $24.3 billion in October 2006.

Golden West, critics say, thrived by allowing borrowers to defer the interest on their monthly payments with adjustable rate mortgages, ultimately leaving borrowers with debt they could not afford to pay off.

Sandler spoke to the AP Sunday about his feelings that he’s being "unfairly tarred."

- jpt

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