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Rick Perry: Clinton policies caused housing crisis

Warns another crash is coming; advocates ending Fannie, Freddie

Fannie Mae, Freddie Mac, the Federal Housing Finance Agency, and Wall Street’s biggest banks have a new enemy – former Texas Gov. Rick Perry.

In a speech last week in New York at a luncheon hosted by the Committee to Unleash Prosperity, Perry, the would-be Republican presidential nominee, positioned himself, surprisingly, as a populist ready to take on Wall Street, laid the blame of the housing crisis on the “destructive homeownership policies” of the Clinton administration, and warned that the next crisis is coming.

According to the group’s website, the Committee to Unleash Prosperity was founded by Steve Forbes, Larry Kudlow, Dr. Arthur Laffer, and Steve Moore “to combat America's growth gap by promoting an agenda that will revitalize America's economy.”

In Perry’s lengthy speech, he said that the roots of the financial crisis stretch back into the early 1990’s, when Washington regulators “fell asleep at the switch” and Washington politicians “changed laws that created the housing crisis.”

In Perry’s mind, the seeds of the housing crisis were sown with President Clinton’s push to increase homeownership by 8 million people, and chided Democratic Presidential hopeful Hillary Clinton for her revisionist view of history.

“If Secretary Clinton wants to take credit for the ‘Clinton economy,’ then she must defend the destructive homeownership policies advocated by her husband that pushed shoddy loans to people who couldn’t afford them, and the economic chaos that followed,” Perry said.

Here is Perry’s view of the cause of the housing crisis, excerpted from his prepared remarks:

(Clinton) sought to achieve this goal by forcing the two federally-backed mortgage giants – Fannie Mae and Freddie Mac – to increase from 30% to 42% the share of mortgages they sponsored from low- and moderate-income borrowers.

In 2000, Clinton increased the share requirement yet again, to 50%.

In a speech on his housing policies, President Clinton said: “Our home ownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more federal programs or grow federal bureaucracy.”

It reminds me of the promise, “if you like your doctor you can keep your doctor.”

Despite the housing crisis taking place under the watch of another former governor of Texas, Perry said that the George W. Bush administration only continued with the groundwork laid by Clinton.

“In fact, under the Bush Administration in 2008, Washington told Fannie and Freddie they wanted 56% of loans to go to low- and moderate-income borrowers,” Perry said. “So it is fair to say there was bipartisan support for Fannie, Freddie and private mortgage lenders eroding their lending standards in order to meet the Clinton-era requirements.”

In Perry’s speech, he said that these moves set the “catastrophic” events of the housing crisis into motion, leading to the rise of subprime lending.

“Not only were Americans buying homes with little or no money down, but they had no documentation of their income or assets,” Perry said. “The banks looked away. The regulators looked away. Everyone pretended the good times would never end.”

Perry went on to admonish all of Washington for not taking action to prevent the crisis.

“As Americans began to borrow more money to buy bigger houses, demand went up and prices went up.” Perry said.

“A whole ecosystem of lobbyists emerged to block reform, and ensure that the party could go on,” Perry continued.

“People started saying that housing prices would never go down again,” he added. “And then the music stopped.”

And when the music stopped, more mistakes were made in Perry’s eyes – namely the Dodd-Frank Wall Street Reform Act and the creation of the Consumer Financial Protection Bureau.

“Once the smoke cleared, Congress misdiagnosed the problem, passed the wrong remedy, and actually made things worse,” Perry said.

And Perry said that the Obama administration’s current policies have the housing market teetering on the verge of another crisis.

“If you thought the financial crisis of 2008 was bad, wait until the next serious economic downturn,” Perry said.

“The fact is the Obama Administration is pursuing some of the same reckless policies that caused the housing crash of 2007 and 2008,” Perry continued.

“Fannie and Freddie are still pushing relaxed credit standards, and down payments on homes that are too low,” Perry said. “The next crash is on the horizon, and the question is: have we learned anything from the last one?”

Both government-sponsored enterprises announced late last year that they would begin buying loans with a 97% loan-to-value ratio.

Perry told the crowd in New York that if he is elected, he will end “too big to fail,” never bail out a bank again, and level the playing field between small banks and big banks.

“Dodd-Frank took aim at Wall Street and ended up harming Main Street,” Perry said.

“And today, community banks are spending more time and money on legal compliance than ever before,” he continued. “We should exempt community banks, banks run as partnerships, and asset management firms from Dodd-Frank’s onerous and excessive regulations.”

Perry also took aim at the CFPB, which he called one of Dodd-Franks “least accountable” new agencies.

“It’s run by a sole director and can spend whatever the Federal Reserve wants it to spend, without Congressional review,” Perry said of the CFPB.

“The regulations imposed by the CFPB haven’t protected consumers, they’ve made credit cards and checking accounts more expensive,” Perry said. “They’ve also made it harder for community banks to compete and stay in business.”

Perry said that at a minimum, the CFPB needs to be reformed so that its leadership and funding are “accountable” to Congress.

“We also need to put the CFPB under a strict regulatory budget, so that it doesn’t do more damage to consumers than it already has,” Perry said.

Perry did not spare Fannie and Freddie either, advocating for the GSEs to be wound down.

“In the meantime, the two mortgage giants should maintain strict capital cushions, just like the big banks, and we should phase in a requirement that all loans that they sponsor are accompanied by higher, more responsible down payments,” Perry said.

“And let me be clear: if we want a vibrant home lending market in America, we need to stop the trend of pushing more and more home loans to Fannie and Freddie and start rejuvenating the private insurance market again,” he added.

“There is nothing wrong in America today that can’t be fixed with new leadership,” Perry said. “We’re just a few good decisions away from unleashing tremendous growth.”

(h/t Christopher Whalen and the Texas Tribune)

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