Trying to figure out if this charge is fact or folklore.
Is there any specific legislation or executive order that refers to this?Did the Clinton administration allow for the securitization of subprime mortgages? If so, how?
There is nothing related to the CRA. The CRA is about responsible community reinvestment in urban and rural areas.
If you look at some of the other responses, you will see some highly inaccurate and misleading information (misinformation) whose origins are a few Republican pundits that have a political agenda, not responsible financial reports.
CDOs and CMOs (collateralized debt/mortgage obligations) have been fixed assets vehicles for a very long time. Most of Fannie/Freddie's portfolio,however, is for fixed rate, high-down-payment loans. Investment banks collateralized the bulk of other debt including sub-prime, alt-A and option-ARMs.
The CRA only applies to FDIC insured banks and thrifts,so it did not apply to the bulk of subp-rime, alt-A, or option-ARM loans, and the CRA discouraged predatory lending like you see with option-ARM loans (which were the biggest problem at the consumer level).
In total, CRA regulated lenders originated less than 20% of the sub-prime loans and even less of the more creative loans. The CRA board issued guidance against option-ARMs and asked its lenders to reduce their portfolio of sub prime loans in 2004.
The securitization on non-prime housing loans was done by the private sector investment banks. Moreover, the issuance of default swaps on those bonds and their counter parties was the creation of investment banks and private insurance firms, and none if it was regulated in any way whatsoever.Did the Clinton administration allow for the securitization of subprime mortgages? If so, how?
http://www.miscellanynews.com/opinions/d鈥?/a>
you're looking in the wrong place. check FNMA, which was run by the same Clinton operatives who are now advising Obama on 'economics'.
FNMA started lumping the subprime loans in with the prime loans, guaranteeing the whole mess and selling slices [securitization] to investors world-wide. Since they were rated ';AAA'; or ';AA'; and had an implicit US government guarantee, investors bought hundreds of billions in them.
Over the next few years, FNMA cooked their books to report over 10 billion in phony profits and paid those same executives over 175 million in salaries and bonuses, all while making over 200 million in 'campaign donations' to the likes of Barney Franks who reciprocated by defending them in Congress from Bush administration attempts to reduce the risks and rein in the lending.
[Famously, Franks said in committee hearings as recently as 2004 that there was nothing wrong with FNMA's practices and the Republican effort was for the purpose of cutting off lending to the poor in inner cities -- he oughta be forced to go live in Cleveland in one of those neighborhoods where 19 out of 20 houses have been totally plundered.]
If I understand this right, and I may not, the risky sub prime loans that were sold on the market were insured to make the risk more appealing to the market. The trick was that they could not call them ';insured'; because insured securities are regulated by the government. Instead of calling it insured, they called them a ';swap'; which meant they were insured in their terminology but not subject to regulation by the fed. So that part is not the fault of the government other than allowing the market to use such ';creativity'; without oversight.
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