subprime loans

Today Barney Frank's House Financial Services Committee will hear ideas from across the political spectrum about what the next-generation Fannie Mae and Freddie Mac should – and should not -- be able to do.

Congress had better pay attention to ex-Fannie CEO Daniel Mudd, who with colleague Robert Levin went before the Financial Crisis Inquiry Commission late last week to give his account of why Fannie Mae ended up as good as wiped out, and in the hands of the U.S. government.

Fannie's losses are expected to cost U.S. taxpayers more than $300 billion.

"In hindsight, less credit exposure to new homeowners, non-traditional products and regions of the country in economic downturn might have reduced losses," Mudd told the bipartisan panel. In other words, mandates from Congress and the U.S. Department of Housing and Urban Development to make credit available to low- and moderate-income borrowers ended up costing Fannie Mae dearly. That's the same conclusion Alan Greenspan came to in testimony to the commission earlier last week.

As if foreclosure-wracked neighborhoods aren't suffering enough, it seems they're also paying more in taxes. According to a study released yesterday by the Atlanta Neighborhood Development Partnership, homeowners in low-income neighborhoods in Atlanta that have been hard hit by the housing crisis were overcharged on property taxes by as much as $500 per household.

The problem lies with how states and local officials compute property taxes. They do it without taking the effect of foreclosures on home values into account -- leading to tax bills that can quickly exceed a house's value.

What's really painful, though, is that the neighborhoods in the study suffered a whiplash of investment and abandonment not so long ago. I know, because I helped make it happen.

In all the fallout from the housing crisis, few groups have suffered as much as blacks and minorities, who were saddling with risky subprime loans at rates far higher the whites with the same incomes or credit scores.

Yesterday, the Civil Rights Division of the U.S. Department of Justice announced that it's launching a new unit specifically to fight racial discrimination in lending, including mortgage lending. This is history in the making. The feds have in the past cracked down on discrimination by landlords and real estate agents by enforcing fair housing laws, used the Home Mortgage Disclosure Act to expose patterns of exclusion by mortgage lenders, and put out research like last year's report from the Commission on Civil Rights about how targeting of minority borrowers fueled the mortgage crisis.

But this is the first time that law enforcement at the national level has stepped up to target discrimination in mortgage lending as an issue in its own right.

The new Fair Lending Unit's main focus will be "reverse redlining," and to understand what that means it helps to get a quick history lesson.