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Henry Cisneros Responds to New York Times Article - Its Not My Fault
Friday, 31 October 2008

Cisneros: Many share blame for economic crisis
Many things share blame for the nation's current economic crisis, including Asian- and oil-fueled liquidity, interest rates kept low too long by the Fed, corporate borrowing binge, speculation in the housing market, and an unusual splitting of housing as shelter to housing as an investment opportunity, former HUD Secretary Henry Cisneros said Sunday...In the context of such activities, Cisneros said, he and others were being blamed for pressing home ownership too far. "Frankly, I don't accept that," Cisneros said. Though he didn't mention it, Cisneros seemed to refer to an Oct. 19 New York Times series on people who helped cause the economic crisis in which his Lago Vista housing project on the South Side was used as an example of a housing project gone bad. Lago Vista was a partnership with KB Home, which built the troubled Mirasol Homes project on the West Side.

Cisneros: Many share blame for economic crisis
Not since 1932 has housing been key issue in presidential election
Ron Wilson
CNP-News San Antonio Bureau

Many things share blame for the nation's current economic crisis, including Asian- and oil-fueled liquidity, interest rates kept low too long by the Fed, corporate borrowing binge, speculation in the housing market, and an unusual splitting of housing as shelter to housing as an investment opportunity, former HUD Secretary Henry Cisneros said Sunday.

One thing that did not fuel the crisis, he declared, was a desire by many to increase home ownership opportunities for Hispanics, minorities and low-income families.

This election is historical, he said, because for the first time since 1932 housing is a fundamental issue in the presidential election.

Cisneros gave the keynote address to the National Association of Housing and Redevelopment Officials national conference at the Henry B. Gonzalez Convention Center.

The fundamental problem is homebuyers being overextended on their mortgages, he said. Banks should be compelled to reconfigure those mortgages so people could keep their homes even if the mortgage had been bundled and sold in the secondary market.

"We must mandate that banks renegotiate mortgages with human beings today," he said.

Banks say that would be difficult because the original mortgages have been securitized and have ended up in the Chinese retirement system and German pension system, Cisneros conceded.

"But it doesn't matter that it's difficult.  We need to go find those contracts and renegotiate those contracts or take governmental action to make that happen. Because we simply are not going to work our way out of this problem with financial gimmickry until we deal with the fundamental problem that too many people have  been  overextended and these mortgages are going to go to foreclosure."

The news media is all about blame right now, Cisneros said.

"But the truth is, we have seen the enemy and in many respects he is all of us."

According to Cisneros, some causes of crisis include:

-Tax credit boom of massive leveraging

-Asian- and oil-fueled liquidity looking for a place to be fed

-Too much faith in the system that kept interest rates low for too long

-Vast corporate borrowing binge with private equity firms and hedge funds and others

In the context of such activities, Cisneros said, he and others were being blamed for pressing home ownership too far.

"Frankly, I don't accept that," Cisneros said.

Though he didn't mention it, Cisneros seemed to refer to an Oct. 19 New York Times series on people who helped cause the economic crisis in which his Lago Vista housing project on the South Side was used as an example of a housing project gone bad.

Lago Vista was a partnership with KB Home, which built the troubled Mirasol Homes project on the West Side.

What did happen, he said, was that brokers were selling mortgages that people couldn't afford, sometimes fraudulently, and speculators were buying houses not to live in but as an investment opportunity.

Much of this was because the housing market was in a "boom mentality," he said.

Mortgages were bundled and sold overseas, he said, so there was no risk at the broker or local banker level, and investors said they wanted more of that.

 Brokers were incentivized by commissions, he said, so they pushed higher and higher housing prices and mortgages.

This created "a witch's brew, a perfect storm of problems," he said.

Solutions include:

-do something about unlicensed brokers

-outlaw some types of products that could be sold without proper documents or income statements

-restructure Fannie Mac and Freddie Mac

-create new oversight of exotic products, hedge funds and derivatives markets

-provide greater scrutiny of ratings agencies that overvalued funds with shaky mortgages

-address fraud and predatory abuses

-put in place a new regulatory framework.

Cisneros then urged the audience not to let the growing housing needs of the country be pushed aside as the nation seeks solutions to the economic crisis.

"This is not a time in which we can allow those who have an axe to grind and have been opposed to government involvement in housing to criticize the goal of trying to put more people in housing and set us back," he said.

"At the end of this," Cisneros said, "we must stand up for the goal of safe and decent housing for every American."

When the new president takes office in January, he will be faced with many problems, Cisneros said.

The first problem is homelessness, with 800,000 people without homes on any given night. If they were all together, they would make up the nation's 12th-largest city.

Second, is the need for supportive housing, or housing with additional services to get people back in the mainstream economy.  The fastest growing need is with single moms with kids.

Third, public housing has a backlog of $32 billion in needed repairs and upgrades. (The value of the nation's housing stock is estimated at about $90 billion.)

Fourth, the need for more subsidized rentals Demographics predict there will be a growing need as baby-boomers age and more families need help during the economic crisis.

Fifth, is more market rate rentals.  The deficit is affordable apartments is so great that most working people cannot afford a decent apartment for a family of four.

Sixth, more entry level home ownership, which is a key to entering the middle class.

http://www.communitynewspublisher.com/cnp_admin/detail.php?preview_article=23725&publisher=65&issue=584

 
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