AIArchitect

As the economy worsens and Election Day fades away, as we take up the task here of operating the architectural practice and the constant search for work, we find the conservative campaign already blaming the global financial crisis on a government push to make housing more affordable to lower-class Americans and talk radio is full of it. There is an attitude that building is too risky now, unemployment is on the rise. People feel greater risk and uncertainty in such times and decisions to build are shaped by these currents.

I find myself in agreement with Mr. Rawlings that the quality of the housing is poor and contributes to the problem. Clearly the massive intrusion of unqualified, en-examined and unlicensed housing designers are the most significant contribution to the poor design quality of our housing in this nation and I urge President elect Obama to propose legislation that eliminates all unlicensed architectural practice nationwide. We should all speak to this problem everyday in each and every state!

The talking heads are gathered and they speak on networks and broadcasts to the issue of what triggered the stock market meltdown and the freeze on credit. They typically target the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems. There is some truth embodied in this, but not all of the cause and effect can be captured there. The fact that the design Intelligence in the product is defective is certainly relevant and completely ignored.

The charges against Fannie and Freddie aren't true at large, according to Federal housing data and reveals that the private sector, the politics of greed, not the government or government-backed companies, are behind the soaring subprime lending at the core of this crisis. The same greed that chooses the cheap knock-off and sells it as if there is no distinction to the unsuspecting is echoed in these events.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:
• More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions, not government lenders.
• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics. Despite obvious errors that did contribute the bulk of responsibility for this crisis belongs to the private sector.
So "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," clearly President Busch’s Working Group on Financial Markets reported it accurately.

Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages. It was the Busch administration that reorganized Fannie Mae and Freddie Mac under the administration of HUD, an organization polarized to an entirely different purpose and driving a completely different mission. There were good intentions and significant errors by both presidents and their advisers.

I don't remember that broadcast or news story that heralded the Fannie and Freddie disaster. Somewhere, somehow there was just too much surprise for something this big. Ignoring the risk and uncertainty embodied in mortgage loans is courting disaster. People knew and did not tell. The private sector went out of their way to hitch our ride to a lame horse, in pursuit of short term profits. No excuse for that.

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans. The under writing in the private sector, was simply not competent and clearly embraced frauds which it is tasked to detect.

It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more. The politics of greed became more important than the prudent and necessary caution, because it was profitable.
This much is certainly true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.
Certainly, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares. It was not intentional but it was predictable.

These loans, and loans to low- and moderate-income families represent however just a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership. They were speaking the truth in part, but problems were already starting to manifest.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from “Inside Mortgage Finance”, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble. It was predictable, avoidable and detectable.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to the press citing a number of specialty publications that track this data.
In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages. The quantum does not support the conservative rant.

The low interest rates and cheap credit, fueled home prices between 2001 and 2007 which expanded beyond anything ever seen before, and further fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.
About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve. Private sector error is clearly at the base of the crisis and may take some time to correct.
Too many conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods. Not a good fit with the statistics or the facts.

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities. It also requires good qualification and underwriting practices. Clearly American workers are burdened more now than they should be and wages that do not keep pace with rising costs also contribute to the crisis.

Respected columnist Charles Krauthammer wrote that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." This is certainly a component of the problem but not the bulk of it.

Fannie and Freddie, as an established fact, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market. Curious quantum analysis is being used to bridge the gap in the facts.

It is also rather revealing, that only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans. The quantity of loans underwritten is relevant in proportion to the crisis, this cannot be discounted in our deliberations.

The truth is that private non-bank lenders enjoyed a significant regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. It should also be said that mortgage brokers, who were not subject to federal regulation or the CRA, originated most of the subprime loans according to the financial reports. Hard cold fact.

Janet Yellen, in a speech last March, as the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.
Architects need to understand that the private sector conservatives are targeting affordable housing in error, we would ask the AIA in it’s public advocacy to request a clarification regarding the role financing of affordable housing actually played in this crisis. We should also ask the AIA to address the issue of unlicensed architectural practice in the US. Clearly the time has come to close the door on unlicensed architectural practice in every state, built environment is now critical to our best hope for a sustainable future, Architect’s the best available service providers of design intelligence should not be sitting on the sidelines because imitations are cheaper.

We all need to recognize that the residential market triggered this problem, just like in the 90s. We Architects are almost completely absent from this area of building and therefore have no control or influence over an industry that directly affects us all eventually. The housing market took a dive over a year ago and commercial fell about one year later. We are led to believe that the foreclosure of personal homes is what's tying up all the money, but there are entire neighborhoods of bad, new, builder box spec houses that sit empty. I've had 4 potential clients recently tell me that they went house shopping first thinking there would be a 40% off gem in the midst of all the houses on the market, but the reality is that the majority of the houses on the market are bad spec houses that never sold. This mentality of disposable housing where quantity rather than quality is key has led to a situation where the banks are sitting on assets that never sold in addition to all the personal homes that have been foreclosed. We need to inject ourselves into this industry and provide that extra layer of regulation and quit letting the amateurs run the show. We're missing out on the majority of building projects in the US by ignoring the housing market and we're not connecting with everyday people in order for them to understand the value of a good design. Instead people continue to buy bad houses designed by hacks and they accept it because there isn't much else to offer.

Since the bank's appraiser sees no difference in a professional being involved in a house project as opposed to a plan book design or an unlicensed designer, we Architects are at a huge disadvantage. We provide more than just a drawing. This mentality encourages amateurism and mediocrity. Why study, why take a test, why maintain a license when you don't have to? Why is the most expensive commodity that most people will purchase in their lifetime the only commodity in the US where the custom made/designed item is valued exactly the same as the mass produced item? A Vera Wang dress costs thousands of dollars while the Vera Wong knock off costs tens of dollars? The Fendi purse is thousands while the fake Fendi from a guy's trunk in Queens costs tens of dollars. An Architect's fee is thousands, while a plan book design costs hundreds, but the appraiser sees no difference when it's a house while they do understand the difference if it's a dress or purse. Why do we just accept this??? Why do we let amateurs take control of a market consisting of the most numerous of all building types? We are not designing the majority of buildings being constructed in this country! Think about it for a second...

When the feds give the money out to the bottom of the pyramid instead of the top the rest of us will begin to be able to use.