by Barbara Hoffman

Created on: November 17, 2008   Last Updated: April 09, 2009

Many fingers of blame are being pointed at "the poor" for the housing crisis. Low- and moderate-income (LMI) individuals were the major beneficiaries of subprime mortgage lending and are now defaulting in record numbers. So it would seem that states with large LMI populations, like Mississippi, would have the highest rates of foreclosure.

In fact, according to RealtyTrac, wealthier states like California, Nevada, and Florida are among those with the highest foreclosure rates. Not coincidentally, these states also had the highest housing-appreciation rates. When the market collapsed, mortgage holders owed more on their property than it was worth and many simply walked away. Exacerbating the already-high foreclosure rate was a fraudulent scheme known as "buy and

bail in which a homeowner buys a second home at a lower price and bails (goes into foreclosure) on the first.

Homeowners at all income levels have been affected by - and sometimes contributed to - the mortgage meltdown. So what happened to create a housing boom and bust of unprecedented proportion?

One major factor was the Community Reinvestment Act of 1977 (CRA), created by Congress to bring the dream of home ownership to LMIs who otherwise would have been disqualified by lenders as credit risks. A worthy goal yet a disaster in the making. In 1995, the CRA was amended to include "performance based" standards that focused on outcomes. This, says a 2001 report by the US Treasury Department, vastly increased the number of LMIs getting mortgages. While the report lauds the greater inclusion of previously disadvantaged groups as a major success, the consequences of this well-intentioned yet misguided policy will become apparent.

As the price of housing appreciated so high so fast, speculators bought up multiple properties hoping to flip them for quick and easy profit. This added even more fuel to the overpricing fire and the subsequent high foreclosure rate.

Another major factor was the loose monetary policy of the Fed. Low interest rates promoted easy credit and a too-low savings rate resulting in a heavy burden of household debt. The value of the dollar plummeted. The dangerously overstretched bubble burst with a roar and has now spawned a staggering number of job losses.

Most people don't understand the details of this crisis yet have a need to make sense of it. Scapegoating the poor may satisfy that need. Sadly though, the damage resulted from mistakes, mismanagement, and misguided policy by government, the Fed, and lending institutions, together with the noxious influence - and ready cash -from special-interest groups. This crisis has claimed many victims, especially those LMIs pushed to become homeowners through risky lending practices. Would it have been better if they hadn't been approved for mortgages? Yes, but they were, and now they - and we - know the disastrous cost of good intentions.

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