What a wild ride we’ve had with Countrywide today. Shares of the home lending behemoth dropped following reports this morning from the Los Angeles Times that the company was on the verge of bankruptcy. And they shot back up this afternoon as word leaked that Bank of America is in talks to buy Countrywide. (Careful DealBreaker readers read it here first, and now the Wall Street Journal is reporting it.)
Even earlier today, CNBC’s Charlie Gasparino—shirt sleeves deceptively intact—was reporting on the “governing philosophy” that created the mortgage mania which in turn birthed our mortgage meltdown and, at the very least, exacerbated the broader credit crunch. He had discovered that back in 2003 Countrywide Angelo Mozilo had given an speech to the Harvard Joint Center for Housing Studies and the National Housing Endowment calling for loosened credit ratings standards and a reduction, or perhaps an end, to downpayment requirements for homebuyers. This was the speech, of course, that informed the front page National Mortgage News story we unearthed for you last Friday.
But don’t blame Mozilo. He was only responding rationally to the incentives created by that all to compassionate monster, the state. Long before the Bush administration attempted to rebuild Iraqi society, it set out to rebuild American society. Although it went under the banner of “compassionate conservativism,” the Bush adminsitration’s call for an “Ownership Society” was, at its core, central economic planning on a colossal scale. The market had failed to make enough Americans homeowners, and so the Bush administration set out to “expand homeownership.”
More after the jump.
Of course, accumulating funds for a down payment is one of the biggest barrier to homeownership. The Bush administration addressed this with both legislation and arm-twisting. It signed into law the American Dream Downpayment Fund, allegedly aimed at helping low-income families own homes by subsidizing their downpayments. It issued challenges to lenders to “close the homeownership gap” by loosening lending standards. It celebrated lenders who did this.
A “Fact Sheet” that was once but apparently no longer is available on the website of the Whitehouse tells the tale nicely. “President Bush Calls for Expanding Opportunities to Homeownership” the headline reads. It goes on to inform the populace that the “President's aggressive housing agenda will help dismantle the barriers to homeownership by providing down payment assistance, increasing the supply of affordable homes, increasing support for self-help homeownership programs, and simplifying the home buying process & increasing education.”
That “Fact Sheet” was issued in connection with a speech the President gave in Atlanta, Georgia calling for “Expanding Opportunities To Homeownership.” The speech is full of the usual blather we’ve come to expect from our presidents. Education is wonderful. Immigration is wonderful. But the now peculiar focus on expanding homeownership stands out. As Bush explains it, tearing down barriers of downpayments and documentation are part of being a good, loyal American. Perhaps even a good Christian. A part of the War on Terror.
I believe out of the evil done to America will come incredible good. I believe that as sure as I'm standing here. I believe we can achieve peace. I believe that we can address hopelessness and despair where hopelessness and despair exist. And listen, I understand that in this great country, there are too many people who say, this American Dream, what does that mean; my eyes are shut to the American Dream, I don't see the dream. And we'd better make sure, for the good of the country, that the dream is vibrant and alive.
It starts with having great education systems for every single child. (Applause.) It means that we unleash the faith-based programs to help change people's hearts, which will help change their lives. (Applause.) It means we use the mighty muscle of the federal government in combination with state and local governments to encourage owning your own home. That's what that means. And it means -- it means that each of us, each of us, have a responsibility in the great country to put something greater than ourselves -- to promote something greater than ourselves.
And to me, that something greater than yourself is to love a neighbor like you'd like to be loved yourself. In order to change America and to make sure the great American Dream shines in every community, every community, we must unleash the compassion and kindness of the greatest nation on the face of the earth.
If you don’t lend, borrow and “buy,” the terrorists, the evil-doers and perhaps the Evil Doer himself wins.
“We certainly don't want there to be a fine print preventing people from owning their home,” the President says. “We can change the print, and we've got to.”
And so the “fine print” was changed. The rest of the story is well known. Angelo Mozilo and others like him responded to the subsidies, entreaties and incentives by opening the mortgage floodgates. Wall Street responded to the flood of mortgages by carrying it away in asset-backed securities buckets. Investors responded by carrying those buckets. And now we’re finding that we’re all wet.
In short, we checked into the Ownership Society years ago. The question now is whether we can ever leave.
Remarks by the President on Homeownership [Whitehouse.gov]