Richard Syron: Did Freddie Mac CEO Blame Lending Mandates That He Championed?

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In the early 1990’s the Boston Federal Reserve may have set into motion, recommendations which served as the catalyst which lit the fuse, igniting the current  conflagration  we’re seeing in our financial markets both nationally and globally.

“The stunning rise in U.S. home foreclosures, which is a root cause of what has become the greatest economic crisis since the Great Depression, was made possible by flexible mortgage-lending standards championed by the Boston Fed in the mid-1990s, according to Stan Liebowitz, an economics professor at the University of Texas at Dallas.”
Boston Herald

In a “landmark” study of the Home Mortgage Disclosure Act data, several of the Boston Fed’s researchers concluded that black and Hispanic loan applicants were more likely than white applicants with similar financial/credit backgrounds to be denied a mortgage.

The Boston Fed had embarked on the study in response to pressure from minorities and others that they were being discriminated against in the mortgage lending process, thereby denying them access to the American dream of owning one’s home.

Liebowitz has been a vociferous critic of the study, along with many others who contend that the Fed study  was a foregone conclusion from the start.

According to the Herald, Liebowitz believes that “they were looking for mortgage discrimination and they found it.”

The head of the Boston Federal Reserve was none other than Richard Syron, the recently ousted CEO of Freddie Mac, who authored the foreword to a Federal Reserve guide on bank lending practices which advocated changes to mortgage underwriting practices in order to make home ownership more accessible to minorities and other communities.

Freddie Mac’s chief executive, Richard Syron, told analysts that home prices had declined faster than anticipated.

“Freddie Mac’s chief executive, Richard Syron, told analysts that home prices had declined faster than anticipated.” – mindfully.org

Stephan Savoia/Associated Press

In Syron’s own words:

“…Serving this market may require
innovative methods. Language and cultural
barriers must be overcome, and new approaches
to assessing creditworthiness may
have to be developed. But serving any new
market requires an investment. Banks, for example,
do not lend overseas without assessing
the economic and political climate of their
target countries, and they should be carefully
studying the risks associated with derivatives
and mutual funds. Work up front is necessary
for success in any new venture, and serving
minority customers is no exception.


The 1992 Boston Fed study, as well as
earlier research on mortgage-lending patterns
and second mortgages in minority communities,
was a logical outcome of the Bank’s
responsibilities for educating banks about their
obligations and opportunities in helping
meet community credit needs and for
evaluating protests of merger proposals
under the provisions of CRA. Contacts with
community organizations arising from these
functions made the Boston Fed aware of a
festering sense of injustice on the part of
minority and low-income borrowers.”

– Richard Syron, Chairman Boston Federal Reserve Bank

Syron, Liebowitz argues is a central character in the housing and economic crisis.  With his endorsement, in the 1990’s the Boston Fed took the position of loosening lending practices as a “moral imperative,” then when Freddie Mac tanked, he blamed the pressure put on him by the banks and financial institutions to lend to riskier clients.  A mandate, pushed onto the lending industry in part,  by Syron and his Fed colleagues, suggests Liebowitz who believes Syron deserves a “fair share of the blame” for where we find ourselves today.

“…THE BANKING COMMUNITY IN BOSTON WAS GALVANIZED BY THE STUDY.
RATHER THAN ATTACK THE RESULTS,BOSTON BANKS HAVE RE-EXAMINED HOW THEY CONDUCT BUSINESS.


THEY HAVE STEPPED UP EFFORTS TO INCREASE LENDING TO MINORITIES BY ADOPTING A BROAD APPROACH EMPHASIZING OUTREACH TO ATTRACT MINORITY BORROWERS AS WELL AS SECOND REVIEWS AND OTHER STEPS TO
ENSURE THAT BORROWERS ARE TREATED FAIRLY. ”


-Boston Federal Reserve Bank 1993 Annual Report

While the Federal Reserve study may have been undertaken with the best of intentions, Liebowitz feels the recommendations were not well thought out and offered the opportunity for exploitation by predatory lenders.

Syron saw the study as a milestone for it catapulted longtime lending practices from the environment, and opened the vault, making home ownership possible for practically anyone and everyone.

A timeline of the various financial chess moves which precipitated the housing and economic crisis is available at:

http://www.dipity.com/TerrranceDC/Meltdown_2008

*Whether you use the flipbook feature or the timeline, dipity.com is a valuable resource in trying to understand the underpinnings of where we are today.

For More:

BREAKING NEWS 10/23/08: FREDDIE MAC ASKS FOR PROBE IN LEHMAN BANKRUPTCY

It May Not Be Lipstick on a Pig, But…

Boston Study At Root of Housing Crisis/Boston Herald

Federal Reserve Bank of Boston 1993 Annual Report

The Financial Crisis Blame Game/Business Week

JOHN PRESCOTT

BostonKayakGuy

Top Real Estate Agent for more than 14 years, serving the real estate needs of  Wellesley, South Natick, Weston, Needham, Wayland, Newton, Framingham and other MetWest communities.  www.johnprescott.net

JOHN PRESCOTT

Vice President

Century 21 Commonwealth

508-523-9252

BostonKayakGuy…The MetWest Scene
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