I just read an article by the Village Voice in which I learned about a central character in the subprime meltdown that I didn't even realize was relevant: Andrew Cuomo. The author Wayne Barrett sure has a negative opinion of Cuomo, Clinton's Secretary of Housing and Urban Development from 1997 till 2001 (he's also been New York State Attorney General since 2007). He blames him for the mortgage meltdown, both for fundamental failures in policy and unethical ties to housing industry interests.
As for his fundamental failings, the author believes that Cuomo's "quantum leap" in mandates for affordable housing drove the subprime and de facto subprime markets upwards, and put pressure on lenders to find ever more subprime mortgages to bundle and sell to Fannie Mae and Freddie Mac.
Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible."
Though this section raises the issue of racial justice in upping the number of low-income loans, and later in the article the author talks about pressure from interest groups like ACORN, ultimately it seems that Cuomo's ties with the mortgage banking industry is what really sealed the deal. The mortgage industry wanted Fannie and Freddie to stop encroaching on their higher-end mortgage territory, so they thought that pushing it further into the toxic nether regions of the mortgage industry would achieve that goal. That's why Cuomo had "closer" ties with private real estate groups like the Mortgage Banker Association and even an anti-GSE group called FM Watch. The author says that these interests were "actually driving [Cuomo's] agenda" as opposed to the affordable housing interests.
Later, however, during Bush's terms, the pressure seems to have shifted from private real estate interests to pressure from the presidency. Bush continued Clinton's legacy of supporting high homeownership rates, and his "ownership society" also put an emphasis on high rates of homeownership. During Bush's 2004 reelection campaign, he pushed the GSEs' affordable housing quota up to 56% from the 50% that Cuomo had managed during the Clinton years.
The article includes a lot more about what appear to be serious ethical failings on Cuomo's part with regards to his relations with private sector executives, and it's an interesting personal take on the subprime meltdown. I don't doubt that Cuomo orchestrated HUD's manipulation of the GSEs and the FHA to effectuate social policy, which then led to the crisis, but I do think the author is a little tough on Cuomo. The incentives were built into the institutional fabric of our government, and conflicts of interest and less than logical government are inevitable. But nevertheless an excellent account.