According to Hillary Clinton, if you were a victim of the foreclosure crisis, it was probably your fault.
The only problem with that argument is that it’s not even close to factually correct.
Clinton in 2007: Homeowners “should have known they were getting in over their heads”
When Clinton ran for president during her second term as New York’s U.S. Senator, she gave a tepid speech at the NASDAQ headquarters on December 5, 2007 — before the financial crisis reached a boiling point — about reforming Wall Street’s housing loan practices, largely excusing financial criminals for their behavior.
“Now these economic problems are certainly not all Wall Street’s fault – not by a long shot,” Clinton said early in the speech.
Clinton’s NASDAQ address amounted to essentially asking the financiers assembled to take voluntary action or else she would “consider legislation” to stop banks from kicking families out of their homes. But early on in the speech, Clinton placed equal blame for the subprime mortgage crisis on low-income homeowners alongside Wall Street.
“Homebuyers who paid extra fees to avoid documenting their income should have known they were getting in over their heads,” Clinton said.
One YouTube user found video of the statement and put it side-by-side with her claim at the first Democratic debate in which she said she went to Wall Street before the crisis and told them to “cut it out.”
To her credit, Hillary Clinton did indeed give several detailed speeches criticizing Wall Street for the dishonest practices that led to the boom and burst of the subprime mortgage bubble. She also put forth a concrete proposal to crack down on predatory lending, although that bill died before even going to a committee vote.
Clinton is a great orator and knows how to make a convincing argument to a captive audience. But what the former New York U.S. Senator says she’ll do is different than what she’s actually done when given the opportunity.
Banks, not homeowners, caused financial crisis
Out of all 50 states, Hillary Clinton’s constituents in New York were some of the hardest hit by the foreclosure crisis. The U.S. Department of Justice’s $13 billion mortgage fraud settlement with JP Morgan set aside an entire $1 billion in restitution just for New York homeowners, out of a total $4 billion allocated for consumer relief. The bank was sued for selling mortgage-backed securities to investors, knowing full well the investments were bogus.
In 2014, Bank of America paid a larger $16 billion settlement for committing the same crime in the years leading up to the financial meltdown. While Bear Stearns helped package mortgage-backed securities for JP Morgan, Bank of America’s partner-in-crime in peddling bogus securities was Merrill Lynch. Out of the $16.65 billion, $300 million was set aside for New York homeowners. The loans Hillary Clinton referred to in her December 2007 speech, in which potential home buyers pay extra fees to not disclose their income, accounted for 40 percent of new mortgages between 2006 and 2007, according to Forbes.
But unlike Clinton, financial experts put 90 percent of the responsibility for the housing crash on the backs of Wall Street banks. The subprime mortgage bubble was built as Bank of America and JP Morgan gave out home loans with no underwriting, meaning homeowners weren’t required to prove they could pay back the loans. This means, effectively, the banks knew the loans were destined for foreclosure before a loan was even granted.
In one instance, a JP Morgan home loan officer admitted to making up an applicant’s income level to make the income-to-loan ratio work. One applicant emailed Marc Bristol, a senior home loan officer for JP Morgan, telling him he had “concern” about the applicant’s income listed on the official mortgage loan application:
I do not make $34,000 a month or anything close to this figure. I am not comfortable signing a document with a number I can not document in some form.
Bristol responded by acting as if inflating the applicant’s income was standard procedure:
This is a stated-income deal. We had to state an amount that will be consistent through each deal. There are certain ratios that have to be met for income to debt. With [property 1] AND [property 2] AND taxes and insurance on your current, this is the figure that made the ratios fit.
Besides, nobody forced the banks to make those loans in the first place:
People shouldn’t be sympathetic to banks that effectively say: “Hey, we knew the applicants were lying and wouldn’t be able to repay the loans. We didn’t care because we didn’t hold onto the loans. We offloaded the risk to investors through the securitization process. But so what? Blame the deadbeat borrowers for the volume of foreclosures today.”
When those homeowners went into foreclosure, the banks then refused to accurately modify mortgages, dooming families to eventual homelessness. These banks then bundled these bogus home loans, had them securitized by Bear Stearns and Merrill Lynch and rated AAA by the top ratings agencies, then turned them over to investors and ensured stockowners that they were making a solid investment, pocketing the profits and inflating the bubble they knew would eventually burst.
Tough talk and soft treatment from Senator Hillary Clinton
As the Daily Beast pointed out, Clinton’s tough talk doesn’t jibe with her Senate record. When a sweeping housing reform passed the Senate in 2008, it did so without Clinton’s leadership. Senator Clinton didn’t even vote in favor of a bipartisan bill that would have repealed the carried-interest tax loophole often exploited by hedge fund managers and Wall Street executives, something she’s campaigned on as recently as last year.
One reason Hillary Clinton makes tough talk about the financial firms but stops short of meaningful action might be due to her representing the same Wall Street banks that played a major role in the financial crisis as New York’s junior U.S. Senator. In addition to being former constituents of hers, JP Morgan and Bank of America are also some of Hillary Clinton’s main campaign donors.
Throughout the course of her political career, JP Morgan contributed nearly $700,000 to her campaign war chest, making them her 4th-largest all-time donor. After Clinton left the State Department, she was paid $225,000 by Bank of America for just one speech. Bear Stearns contributed approximately $50,000 to Clinton’s campaign between 1999 and 2004. Merrill Lynch gave over $33,000 in that same time cycle.
If you plan on voting in the Democratic primary and you want a candidate to be tough on Wall Street, it’s important to compare Hillary Clinton’s words to her legislative record and her campaign finance filings before making your decision.