Under the watch of CEO Richard Kovacevich, Wells Fargo became one of the largest sellers of subprime mortgages in the country. Now in American Banker, he whitewashes his past by promoting The Big Lie, which redefines the term "subprime mortgage," according to the discedited research of Edward Pinto, a resident crackpot at the American Enterprise Institute.
Apparently, the editors at American Banker failed to notice that Kovacevich's piece, co-written with William M. Isaac, was largely copied verbatim from an earlier piece that they posted on CNN. Here's the key paragraph:
Subprime mortgages have existed for decades. But they were a small percentage of the mortgage market (well under 10 percent), until Fannie and Freddie reduced credit standards to increase market share and meet low income and minority home ownership targets mandated by Congress. By 2007 nearly 50 percent of all mortgages originated in the U.S. were subprime with Fannie, Freddie and other agencies guaranteeing about 70 percent.Kovacevich is fully aware that he is lying; he was in the business and he knew exactly how it worked. The subprime loans that Kovacvich sold to Wall Street are radically differerent from those purchased and guaranted by Fannie and Freddie, and we see those differences evidenced in current and subsequent loan performance.
As noted previously, Fannie and Freddie’s loans were subject to anti-predatory lending standards, whereas subprime loans sold to Wall Street were not. This is why the vast majority of subprime loans have so many features—teaser interest rates fixed at no more than two-years, prepayment penalties, less-than-complete documentation—that were prohibited by the GSEs. It’s worthwhile to recall how the GSE anti-predatory regulations came into effect. Around 2000, then HUD Secretary Andrew Cuomo was alarmed by the predatory practices concentrated in the subprime lending sector, so he encouraged the GSEs to compete in that retail market by offering loans to credit impaired borrowers who, upon closer examination, could be considered acceptable risks. For instance, Fannie's Expanded Approval program was offered as an alternative to a subprime loan product, because Fannie's underwriting standards were subject to predatory lending standards, whereas subprime lenders were not.
It should be no surprise that Kovacevich is a major supporter of candidate Mitt Romney.