Did Andrew Cuomo Feed the Subprime Crisis?
Decisions at HUD Under Fire
Monday, September 27, 2010
Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from political conversations on WNYC. On today's Brian Lehrer Show, Village Voice senior editor Wayne Barrett and Dean Baker, co-director of the Center for Economic and Policy Research discussed Andrew Cuomo's record as Secretary of Housing and Urban Development.
When Democratic gubernatorial candidate Andrew Cuomo was secretary of the U.S. Department of Housing and Urban Development, he insisted that government-sponsored entities Fannie Mae and Freddie Mac's back more home loans to low and moderate income people- those who previously were locked out of the mortgage market. Village Voice reporter Wayne Barrett argues Cuomo's aggressive push to get Fannie and Freddie into the subprime housing market - and his capitulation to mortgage industry players who didn't want to disclose the terms of the mortgages they were making- led to the subprime mortgage crisis.
A lot of the housing advocates who wanted to see these new housing goals imposed, they also wanted to the terms of them to be disclosed and he really went into the tank with the industry, in making sure that it did not have to disclose.
Fannie and Freddie operate on a secondary mortgage market, insuring and buying mortgages, but not directly lending to consumers. Their willingness to ensure subprime mortgages could be seen as increasing major banks' ability to make the initial loans. But Dean Baker, co-director of the Center for Economic and Policy Research, said Fannie and Freddie's - and by extension Cuomo's - role in the subprime meltdown is negligible.
If you look at what was going on '03, '04, '05, '06, Fannie and Freddie's marketshare was going through the floor. It was Goldman, it was Merrill Lynch, it was Citigroup. They were the ones that were securitizing the worst garbage that was coming out of Century, Countrywide, you know the worst of these subprime and allpay mortgages. So, believe me, Fannie and Freddie did not act well and they disserve some of the criticism and I was giving it to them back in 02, 03. But to somehow blame them and their desire to serve the minority community as what caused this bubble, that's crazy.
Both Barrett and Baker criticized Cuomo for failing to require that mortgage lenders disclose the terms of the mortgages the government sponsored entities were underwriting. And they agreed permitting high yield-spread premiums - which meant mortgage brokers were getting paid by lenders when they pushed bigger mortgages and didn't have homebuyers' best interest at heart- was indefensible. The mortgage bankers association benefited from Cuomos policies, even if the original goal was to increase lending to minorities, Barrett said. Baker agreed.
This is a pernicious practice. It's being somewhat cleaned up just now, but you are absolutely correct there is no justification for that. I won't speak for his motives, I don't know, but I think someone could be reasonably well suspicious what they were.
As attorney general, however, Cuomo has aggressive about trying to undo the abuses that led to the housing crisis, Barrett said.
I think his dealing with the credit rating agencies, and many other factors that contributed to the meltdown has been remarkably strong. I mean he's the guy that gave us all the bonus babies. He's done so much in that office, I think, to try to attack some of the causes I mean the Bank of America case, many other cases that he's been involved with to try to attack some of the causes of the meltdown.
Listen to the entire conversation on The Brian Lehrer Show.