Fox's Varney, Napolitano blame affordable housing programs for mortgage crisis

On the July 8 edition of Fox Business Network's Fox Business, host Stuart Varney asserted that "[a] new congressional report shows the real culprit in the housing bubble was the government. They concluded that the pressure put on the banks to lend to people who couldn't really afford mortgages -- well, that blew up the market." Varney and Fox News senior judicial analyst Andrew Napolitano identified the Community Reinvestment Act as the primary mechanism through which the government acted. Napolitano also pointed to the government-sponsored enterprises Fannie Mae and Freddie Mac as a "second" instrument of government policy. In fact, the "congressional report" is a staff report released by the House Oversight and Government Reform Committee's minority. Moreover, as Media Matters for America documented, Varney and Napolitano's claims that the Community Reinvestment Act, Fannie Mae, and Freddie Mac played a central role in the housing crash are myths.

During the discussion, Napolitano said, "It was the government pushing the free market to do things it would not naturally do: to lend to people who ordinarily would not be able to -- at below-market rates, and then when the market rates went up to where they naturally would be, these folks couldn't afford to pay them back." After Varney asked if he was "talking about the Community Reinvestment Act," Napolitano replied, "The Community Reinvestment Act of 1977, a Carter-era law which was enforced by every president from Jimmy Carter to the present president." Additionally, a Cybercast News Service article about the minority staff report uncritically reported that "conservatives ... argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008."

But as Media Matters has noted, the suggestion that the financial crisis was caused by banks lending irresponsibly to comply with CRA is widely discredited. Indeed, actions taken by banks to expand lending to underserved communities, the focus of CRA, did not cause the financial crisis, according to Federal Reserve chairman Ben Bernanke, who stated in a November 25, 2008, letter: "Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties."

Further, the Oversight and Government Reform minority staff report itself states that "CRA cannot be directly blamed for the huge volumes of risky nonprime mortgages that were eventually purchased by Fannie, Freddie and Wall Street investment houses," instead asserting that "CRA continued a pattern of behavior of lowering mortgage underwriting standards in order to drive up the national homeownership rate."

In addition, Napolitano falsely claimed that Rep. Barney Frank "singlehandedly resisted any oversight, any auditing, or any regulation of Fannie and Freddie." Because of that, Napolitano said, Frank "himself, perhaps more than any other single human being on the planet, deserves the blame for much of this." Similarly, the CNS article falsely reported that Frank "fought against regulation" of Fannie and Freddie. In fact, as Media Matters has noted, Frank repeatedly supported legislation to strengthen oversight of Fannie and Freddie, and it was only after the Democrats gained control of Congress that such legislation was passed. Specifically, in early 2007, as chairman of the House Financial Services Committee, Frank sponsored H.R. 1427, a bill to create the FHFA, granting that agency "general supervisory and regulatory authority over" Fannie Mae and Freddie Mac and directing it to reform the companies' business practices and regulate their exposure to credit and market risk. The FHFA was eventually created after Congress incorporated provisions that House Speaker Nancy Pelosi said were "similar" to those of H.R. 1427 into the Housing and Economic Recovery Act of 2008, which President Bush signed into law on July 30, 2008.

Furthermore, on July 8, the Fox Nation linked to the CNS article with a picture of Frank and the headline, "Federal Gov Real Culprit in Economic Crisis, Report Finds":

From the July 8 edition of Fox Business Network's Fox Business:

VARNEY: A new congressional report shows the real culprit in the housing bubble was the government. They concluded that the pressure put on the banks to lend to people who couldn't really afford mortgages -- well, that blew up the market.

Yep. All rise, Fox News senior judicial analyst Judge Andrew Napolitano is here.

NAPOLITANO: This is just as our friend and colleague Peter Schiff predicted. This is just as our friend and colleague Tom Woods has written in his runaway bestseller Meltdown, in which he describes exactly how this happened. It was the government pushing the free market to do things it would not naturally do: to lend to people who ordinarily would not be able to -- at below-market rates and then when --

VARNEY: Yeah.

NAPOLITANO: -- the market rates went up to where they naturally would be, these folks couldn't afford to pay them back.

VARNEY: You're talking about the Community Reinvestment Act?

NAPOLITANO: The Community Reinvestment Act of 1977, a Carter-era law which was enforced by every president from Jimmy Carter to the present president. The second thing they did was to have Fannie and Freddie as your backups. You got a lousy mortgage out there? You got an underperforming one? We'll buy it from you. You'll still make the point or two from -- the percentage of the mortgage as a fee -- from your loaning the money, but we'll deal with servicing it. We'll take the risk. We're the government, because of the social policy of the government: that everybody should own a home.

VARNEY: Now I know where you're coming from.

NAPOLITANO: And not everybody should own a home, because not everybody can afford to own a home.

VARNEY: If it had left it to the market, without the politicians getting involved to push for political goals, you say everything would have been all right?

NAPOLITANO: Yes. George W. Bush, who claimed to be a lover of the free market -- put aside what he did on the TARP; this is something that most of the public doesn't know he did -- directed the Department of Housing and Urban Development to offer federal mortgages to over 150,000 people with zero money down.

Now, Stuart, in many states in the union, zero money down isn't even considered a mortgage, because you have no equity. It's considered a rental, but when you say to somebody, "You like that $150,000 house, that quarter of a million dollar house? You can have it with zero money down," is that a person that you think is going to be able -- who has no savings -- who is going to be able to pay the mortgage back in a timely manner? No. This all came down at once.

VARNEY: Are you -- that is exactly what Congressman Barney Frank says: It was Bush's fault. Are you agreeing with Congressman Frank?

NAPOLITANO: No. I agree with Congressman Frank that, what I just described from President Bush, along with what he did with TARP, were profoundly violative of the free market. But Congressman Frank himself, perhaps more than any other single human being on the planet, deserves the blame for much of this, because he singlehandedly resisted any oversight, any auditing, or any regulation of Fannie and Freddie, who, as federally serviced government enterprises -- private institutions that we backed up with tax dollars -- were taking these lousy mortgages and encouraging the banks to make these bad loans and then sell the loans to Fannie and Freddie, which put the taxpayer on the hook.