STUDY: Bush Administration Added To Crisis By Preempting State Anti-Predatory Lending Laws

A new report suggests that the the Bush administration's hard push to preempt state anti-predatory lending laws may have added fuel to the fire of the mortgage crisis.

Barry Ritholtz first had news of the study by the University Of North Carolina at Chapel Hill (check out his blog here) -- and he suggests the Bush administration added fuel to the mortgage crisis by stripping states of their power to reign in lenders that prey on unsuspecting borrowers. Anti-predatory lending laws, Rithholtz points out, usually limit fees and prepayment penalties and require banks to secure proof of a borrower's ability to repay loans,

No surprise, then, that states with these restrictions had far fewer defaults. That is, until the Bush administration stepped in. Here's Ritholtz:

Why did the US preempt state APL laws? There was the ideological belief that states were interfering with profits and "financial innovation:" In February 2004, the Bush White House, working through the Office of the Comptroller of the Currency (OCC) officially preempted national banks from state laws regulating mortgage credit, including state anti-predatory lending laws. (This was far broader than the 1996 regulatory preemption by the Office of Thrift Supervision (OTS) applied to federally chartered S&Ls).

The Bush White House claimed that banks should "only be subject to federal laws regulating mortgage credit."

To be fair, the report states that in 1996, during the Clinton administration, the Office of Thrift Supervision preempted federally-chartered savings banks from state anti-predatory lending laws.

Here's more from the report:

Overall, we observed a lower default rate for neighborhoods in the APL states, in states with requirement on the verification of borrowers' repayment ability, in states with broader coverage of subprime loans with high points and fees, and in those with more restrictive regulation on prepayment penalties. We believe that these findings are remarkable, since they suggest an important and yet unexplored link between APLs and foreclosures. Moreover, given the wide range of factors influencing foreclosures, including house price declines, rising unemployment, and differences in state foreclosure processes, these descriptive statistics are likely to result in an underestimation of the positive impacts of APLs. These descriptive findings lend weight to our contention that federal preemption of more stringent state APLs may have allowed national banks and federal thrifts to increase their origination of loans with risky characteristics.

READ the entire report:

Phase_I_report_Final_Oct5_2009_Clean -

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Comments

[eilish]

08:57 PM on 10/24/2009

I sincerely hope that all those who are blaming the borrowers so intensely will start waking up and being a little more compassionate.

[mjtaylor22]

05:13 PM on 10/09/2009

I ALREADY KNEW THIS, the bush white house got inthe way of states enfiorcing predatory lending laws.
it was a set up.plain and simple.
can someone get arrested now
dang

[outnow]

03:36 PM on 10/09/2009

Bush wanted to be war president and to serve two terms. In order to afford this, he wanted evryone to go shopping with money that they took out of the equity in their homes.

Eliot Spitzer and others were marginalized in one fashion or another so that little Caligula Bush could measure up to Poppy or enrich his cronies. In the process, state law AND federal regulation were intentionally pre-empted.

The neocons will all rot in Hell along with the ever-compliat Democrats. Trillions went down the drain in fruitless wars of choice and in illusionary equity.

The house of cards has fallen and the criminals walk the streets, enriched from the plunder, not of the enemy, but of our nation. Hecka a job, "W." Mission accomplished!

[sddave]

07:02 PM on 10/08/2009

Hasn't everyone figured out yet why Eliott Spitzer was taken out by the prostitution scandal while governor. On February 14, 2008, the following column written by Gov. Spitzer, appeared in the Wash Post. It describes the incredible lengths the Bush cabal took to curtail state investigations on predatory lending. It was drafted by the governor subsequent to his stint as A.G. of New York.
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

It only took the Bush spy apparatus 24 days to bring him down, the scandal breaking on March 10! Coincidence folks, I don't think so. J. Egar Hoover's odyssey and methodology has only gotten bigger and more sophisticated. The corruption in our government knows no bounds.

[efmo]

04:27 PM on 10/09/2009

I do agree that Eliot annoyed a lot of folks with some of his investigations & articles, but if he wasn't doing what he shouldn't have been doing, they would not have had such an easy time of it. (and I'm from NY & wish he was still governor).

[eilish]

08:56 PM on 10/24/2009

I don't mind overlooking stuff that has no bearing on the job he does. It's not like he's unique.

[RomeoMD25]

06:55 AM on 10/08/2009

O was Big Finances top recipient in 08 to the tune of $40 million. Might explain
why 9 months later there has been virtually nothing done to reign in Wall St's excesses.
http://www.opensecrets.org/industries/recips.php?ind=F&cycle=2008&recipdetail=A&mem=Y&sortorder=U

[afgail]

02:03 AM on 10/08/2009

All this who hah about Fannie Mae and Freddie Mac is what the old Soviet Union used to call disinformation. The state regulations that kept mortgage lenders honest were removed by the Bush administration. And the collapse of the financial industry was a direct result. Foreseeable by any knowledgable insider. I think this is a classic case of depraved indifference by the Bush administration.

[jinxed]

01:43 PM on 10/08/2009

Or simply greed of a magnitude that can't be described. The 2%ers were so POed about FDR curtailing the excesses they enjoyed they waited in the shadows plotting and planning for the day they could ambush America's middle class. Their opportunity bore fruit with the election of raygun marking the beginning of the end of America's middle class.

Can you imagine how embarrassing it must have been for the 2%ers to travel to playgrounds and have to share with a middle class family? EWW the unwashed masses ... time to put them back in their proper place (under the heel of the 2%ers who inherited their money and the pirates that stole theirs)!

[Infobuzz]

01:40 AM on 10/08/2009

Foreclosures have been a major issue of the economic recession that has hit all countries across the world. The Bush administration overlooked the foreclosure issues of the average homeowners which the Obama administration is struggling to tackle with various initiatives.
Read more.
http://www.housingnewslive.com/us-housing-news-articles.php

[tuberider]

07:37 PM on 10/07/2009

The Bush Administration Preempted Sate Laws? Man, those clowns preempted the American 21st Century!

[BillLT]

05:45 PM on 10/07/2009

I hope the dems can still have a majority in 2010.

hat tip to ; http://iamned4.blogpsot.com

The opportunity for change so far has been squandered

[Safire]

02:54 PM on 10/07/2009

When are people going to realize that the so-called wedge issues people vote on, and you already know what those are, are created to distract you from the real stuff that can harm you. THIS is the stuff that harms us, our family, and our economy. They use things like proposition 8, and other irrelevant-to-your-person issues to distract you. March on DC by the tea baggers, what did that do? Stop being tools. You are being duped.

[FoonTheElder]

02:26 PM on 10/07/2009

They are trying to do the same thing on state health insurance laws as well.

[GodYesOrNo]

01:11 PM on 10/07/2009

Unfortunately the very same practices are rampant in Canada. Obviously the Canadian has learned nothing.
GodYesOrNo.com

[Deepblu]

01:04 PM on 10/07/2009

yay for pointing fingers instead of working to resolve the mess.

[Safire]

02:47 PM on 10/07/2009

No, not finger pointing, just the facts. How can one solve a problem without understanding the source of the problem. Personally I don't give a rats a$$ who started it, although it is no surprise.

Yay? We have no idea how many little things were put in place to help big business and banking to the detriment of our country, which is comprised of us, the citizens of this country, and the ones affected by the generosity of the previous administration toward corporations. Almost a decade in office is enough time to do major damage.

WAKE UP AMERICA!

[itolduso]

12:35 PM on 10/07/2009

I wonder why they bothered....no one was enforcing any laws anyways. Ponzi schemes, fraud, criminal conspiracy, falsifying loan documents, falsifying transfer tax documents, misrepresentation, ect., ect.....How many arrests so far?How many attorneys disbarred? How many agents or appraisers investigated? How many bankers in jail? How many County Clerks impeached? They were all either complicit or grossly incompetent, but most still have their jobs and/or bonuses. Only poor people have to fear the law.

[stillfresh]

12:41 PM on 10/07/2009

Well, they were enforcing laws -- the ones they made up about abortion or euthanasia. Fools, all. Can't say they wrecked the country alone, though. Reagan created the two-income household and broke the back of the American family.

[Hank10303]

01:08 PM on 10/07/2009

And in being complacent we Americans let it happen. Many moderate and democratic as well as independent voters never contemplated the impact that poor congressional leadership and an incompetent Presidency can have on affecting our daily lives. We much teach our children so that this never happens again. Granted information was not as available then as now, as we know he that use to control the news and media owned the world, but the major shifts to the right that created a policy design for the rich, well connected and powerful should never happen again.

[KeysE2S]

12:32 PM on 10/07/2009

Any of you conservative marks who got tricked into voting for Bush want to chime in on this? States' rights? Small, unobtrusive federal government?

Anyone?

[billhodges]

12:37 PM on 10/07/2009

-April 2001 the Bush Administration warned of red flags regarding Fannie And Freddie

-2002 Budget request warned that the size of Fannie and Freddie is a potential problem

-2003 the white house warning was upgraded to a systemic risk that could extend beyond the housing market

- Fall 2003 the Bush administration pushed congress hard for an agency that would regulate and supervise Fannie and Freddie

- Then ranking member of the House Financial Services Committee, Barney Frank, pushed back, stating-“we are not in a crisis”.. and…“the federal government should be doing more to get low income families into houses”…and…“too many people had a sky is falling mentality"

-In 2005, Alan Greenspan stated: “Enabling these institutions to increase in size-and they will once the crisis in their judgment passes-we are placing the total financial system of the future at substantial risk”

-NY Senator Charles Schumer stated: “I think Fannie and Freddie over the years have done a incredibly good job and are an intrinsic part of making America the best-housed people in the world…if you look over the last 20 or whatever years, they’ve done a very, very, good job”

-In 2006 Senator McCain co-sponsored legislation for more regulation, on the floor of the Senate he stated: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac...and the sheer magnitude of these companies and the role they play in the housing market"

[FreedomCorpse]

12:45 PM on 10/07/2009

And Oxley and Rich buried the systemic risk warnings from the Office of Federal Housing Enterprise Oversight and bush fired the director of the office.

[itolduso]

12:45 PM on 10/07/2009

Take a close look at the foreclosures.....it wasn't Fannie & Freddie that failed