Friday, September 26, 2008

The U.S. Financial Crisis: The Bush Connection

Among the villains in the U.S. financial crisis is President George W. Bush. There is near consensus among economists and global bankers that the principal source of the crisis is subprime mortgages, granted to individuals who could not otherwise afford to purchase a home. Foreclosures on these homes are heavily concentrated in California's central valley, Arizona, and Florida, home to large numbers of Hispanics.

On June 18, 2002, President Bush addressed the staff of the Department of Housing and Urban Development (HUD). Eighteen months into his first term, he raised the issue of the homeownership gap in the United States. Noting that three-quarters of Anglo-Americans (of European descent) owned their own homes, but less than half of African-Americans and Hispanics did so, he recommended that the federal government strive to create an additional one million minority homeowners by 2010.

Bush proposed such specific measures as lowering the down payment for first-time homebuyers, enacting a housing tax credit, simplifying mortgage and all other documents dealing with homeownership, and educating people on the legal implications and ramifications of buying a home.

He urged Fannie Mae and Freddie Mac, two government agencies that finance home loans (both taken over by the federal government in September 2008), to use their influence to create capital to help African-Americans and Hispanics purchase homes. He urged HUD to mount an active outreach program to identify potential minority home buyers.

Bush may have played only a small part in precipitating the financial crisis, but his remarks surely reinforced the political pressure on lenders to relax mortgage requirements on potential minority homebuyers.

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