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And you call yourself a scientist??? Someone's opinion isn't what I'm looking for. Show me the verbiage of a law that forces banks to make loans to people.Can any of you boneheads post the verbiage of a law that required banks to lend money to people that couldn't pay it back?
I'll wait patiently for a response.
There's an interesting discussion on Wikipedia about this with several references:
Community Reinvestment Act - Wikipedia, the free encyclopedia
This article appears to have a lot of the details you requested:During a 2008 House Committee on Oversight and Government Reform hearing on the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, asked if the CRA provided the fuel for increasing subprime loans, former Fannie Mae CEO Franklin Raines said it might have been a catalyst encouraging bad behavior, but it was difficult to know. Raines also cited information that only a small percentage of risky loans originated as a result of the CRA. Bob McTeer, president of the Dallas Federal Reserve Bank from 1991 to 2004, said There was a lot of pressure from Congress and generally everywhere to make homeownership affordable for poor and low-income people. Some mortgages were made that would not have ordinarily been made. He also said When a bank made a decision to purchase mortgaged-backed securities, they would somehow determine if some of them were in zip codes covered by the CRA, and therefore they could get CRA credit.[72][73]
How Government Stoked the Mania - WSJ.com
I believe it's a stretch to say "CRA to Blame for Housing Debacle," but it most certainly could have been a contributing factor. I'll let you guys sort it out.
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.
etc.
Wish I could say that I am convinced, but the weight of experience inveighs against. If figures could not be made to lie, we wouldn't need a judicial system.
The idea that the CRA was a big contributor to the housing debacle keeps popping up. Thus, I'm creating a new thread to refute this assertion.
The San Francisco Fed says that the CRA was not a primary contributor to the housing bubble.
A pair of economists from the Federal Reserve Bank of San Francisco added another piece of evidence to the case that the 1977 Community Reinvestment Act wasnt the cause, or even a major contributor, to the subprime mortgage debacle.
In a paper focused on California that was presented at a Fed conference on housing and mortgages in Washington, D.C., Elizabeth Laderman and Carolina Reid say the data should help to quell if not fully lay to rest the arguments that the CRA caused the current subprime lending boom by requiring banks to lend irresponsibly in low and moderate-income lenders. Fed governor Randall Kroszner made a similar case earlier this week.
Among the specific findings in Lending in Low- and Moderate-Income Neighborhoods in California: The Performance of CRA Lending During the Subprime Meltdown:
# Overall, lending to low and moderate income communities comprised only a small share of toal lending by CRA lenders, even during the height of the California subprime lending boom.
# Loans originated by lenders regulated under CRA in general were significantly less likely to be in foreclosure than those originated by independent mortgage companies that werent covered by CRA.
# Loans made by CRA lenders within their geographic assessment areas covered by the law were half as likely to go into foreclosure as those made by the independent mortgage companies.
# 28% of loans made by CRA lenders in low income areas within their geographic assessment areas were fixed-rate loans, compared with 18.2% of loans made by independent mortgage companies in low income areas.
# 12% of the loans made by CRA lenders in these areas were high-priced loans, a technical definition of subprime, compared with 29% of the loans made by those lenders outside their assessment areas and 52.4% of loans made by independent mortgage companies in low-income areas.
Real Time Economics : Don't Blame CRA (The Sequel)
Federal Reserve governor, Randall Kroszner, says the CRA had little effect on home prices.
The striking result, Kroszner said: Only 6% of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes.
This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis. Banks can also meet CRA obligations by buying loans from mortgage brokers, he noted. But less than 2% of the higher-priced loans (those would help banks meet CRA requirements) sold by independent mortgage companies were purchased by CRA-covered institutions.
Real Time Economics : Fed's Kroszner: Don't Blame CRA
FDIC Chairwoman, Sheila Bair, and Comptroller of the Currency John Dugan say that the CRA was not a significant factor.
FDICs Bair Sets to Shatter CRA Myth : HousingWire || financial news for the mortgage market
That wasn't very nice of me, I apologize.And you call yourself a scientist??? Someone's opinion isn't what I'm looking for. Show me the verbiage of a law that forces banks to make loans to people.There's an interesting discussion on Wikipedia about this with several references:
Community Reinvestment Act - Wikipedia, the free encyclopedia
This article appears to have a lot of the details you requested:
How Government Stoked the Mania - WSJ.com
I believe it's a stretch to say "CRA to Blame for Housing Debacle," but it most certainly could have been a contributing factor. I'll let you guys sort it out.
Insults are not necessary. Yes, I am a Scientist. You obviously did not read the story. Next time you want to fling an insult, at least be able to back it up.
Here's some pertinent information:
There was clearly a problem. Why you would choose to deny it is anybody's guess. Perhaps you can explain your position without an ad hominem attack.Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.
etc.
Wish I could say that I am convinced, but the weight of experience inveighs against. If figures could not be made to lie, we wouldn't need a judicial system.
What weight of experience? All the people with experience - the people in the Fed and the FDIC, not to mention investors are telling you that the CRA was irrelevant.
I have had, literally, hundreds of conversations regarding this issue over the years with investors, economists, bankers, borrowers, lenders, derivatives professionals, etc., and not once - not once! - has the issue of the CRA come up as a cause of this debacle. Yet, we are supposed to believe from highly politically partisan people with an ideological axe to grind that the CRA was the cause of the financial melt-down.
As for the figures lying, how do you know, other than it contradicts your beliefs? Remember, the empiricist changes her beliefs in light of contrary evidence. The ideologue retains her beliefs despite contrary evidence. In my world, ideologues don't last long.
The CRA most assuredly played a major roll in this mess as it was the CRA that directed Freddy and Fanny to package these mortgages into securities and put them on the market. It was that direction that enabled he bubble to build.
My, my, what a scolding. I can't tell you how chagrinned I feel.
I think I'll decide how much relative importance I lend to your "hundreds of conversations regarding this issue," ephemeral though them may be, to the permanent and recorded record that have been produced via "youtube."
BTW, what makes you think that you are not an ideologue, and, if so, let's hope you continue to "last long."
Thanks anyway, and try not to take it so personally.
What about the info I provided PC?
What about the info I provided PC?
The interesting links indicate multiple cause, and I tend to agree. I don't agree that the CRA is without a major partof the blame.
CRA was a force behind the following:
WASHINGTON Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House committee.
E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.
"Their irresponsible decisions are now costing the taxpayers billions of dollars," said Rep. Henry Waxman, D-Calif., chairman of the committee, which reviewed nearly 400,000 internal documents from Fannie and Freddie.
Fannie Mac, Freddie Mae ignored warnings about risky loans
And this from the NYTimes:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.
race42008.com » Blog Archive » NY Times, Nine Years Ago (Fannie Risky Loans, Pressured by Clinton Adm.)
And check this out:
The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?
The Government Did It - Forbes.com
The CRA most assuredly played a major roll in this mess as it was the CRA that directed Freddy and Fanny to package these mortgages into securities and put them on the market. It was that direction that enabled he bubble to build.
huh? proof please on cra directing freddie to market their loans in MBS's???
What about the info I provided PC?
The interesting links indicate multiple cause, and I tend to agree. I don't agree that the CRA is without a major partof the blame.
CRA was a force behind the following:
WASHINGTON Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House committee.
E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.
"Their irresponsible decisions are now costing the taxpayers billions of dollars," said Rep. Henry Waxman, D-Calif., chairman of the committee, which reviewed nearly 400,000 internal documents from Fannie and Freddie.
Fannie Mac, Freddie Mae ignored warnings about risky loans
And this from the NYTimes:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.
race42008.com » Blog Archive » NY Times, Nine Years Ago (Fannie Risky Loans, Pressured by Clinton Adm.)
And check this out:
The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?
The Government Did It - Forbes.com
There are two issues here. First is Fannie and Freddie. Nobody is saying that Fannie and Freddie were not a systemic risk to the financial system. Clearly, they were. But the criticism is in the wrong direction. The criticism is not that Fannie and Freddie made bad loans. The issue is that Fannie and Freddie weren't capitalized well enough. The amount of capital the GSEs had on their balance sheets to support all their loans was 2%. That's nuts. If their portfolio falls 2%, they are effectively insolvent. If you are looking for a Democratic scapegoat, this is as good as any since the Democrats were the primary enabler of the GSE. However, it should be noted that when the GOP controlled every facet of government from 2002 to 2006 - when all this bad debt was being built up on their balance sheets - they chose to turn their heads and do nothing. It should also be noted that it wasn't just Freddie and Fannie that were not well capitalized enough. It was also Lehman, Bear Stearns, Merrill Lynch, Citigroup, Wachovia, IndyMac, AIG, and many other financial institutions, all of whom were not government entities! In this sense, the GSEs were behaving like their private market competitors.
It should also be noted in the links provided that the criticism was that "the government forced lending through the GSEs via the CRA." The articles leave the impression that the CRA was a primary cause of the housing debacle. None of the articles mention - anywhere - the volume and the scale of the borrowing through the CRA and nor subsequent default rates. Now, in the first posts in the thread, we know. It was less than 10%. Pointing out that the government mandated risky lending through the CRA does not anywhere prove causality. The empirical evidence is that it was not.
The interesting links indicate multiple cause, and I tend to agree. I don't agree that the CRA is without a major partof the blame.
CRA was a force behind the following:
WASHINGTON Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House committee.
E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.
"Their irresponsible decisions are now costing the taxpayers billions of dollars," said Rep. Henry Waxman, D-Calif., chairman of the committee, which reviewed nearly 400,000 internal documents from Fannie and Freddie.
Fannie Mac, Freddie Mae ignored warnings about risky loans
And this from the NYTimes:
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.
race42008.com » Blog Archive » NY Times, Nine Years Ago (Fannie Risky Loans, Pressured by Clinton Adm.)
And check this out:
The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?
The Government Did It - Forbes.com
There are two issues here. First is Fannie and Freddie. Nobody is saying that Fannie and Freddie were not a systemic risk to the financial system. Clearly, they were. But the criticism is in the wrong direction. The criticism is not that Fannie and Freddie made bad loans. The issue is that Fannie and Freddie weren't capitalized well enough. The amount of capital the GSEs had on their balance sheets to support all their loans was 2%. That's nuts. If their portfolio falls 2%, they are effectively insolvent. If you are looking for a Democratic scapegoat, this is as good as any since the Democrats were the primary enabler of the GSE. However, it should be noted that when the GOP controlled every facet of government from 2002 to 2006 - when all this bad debt was being built up on their balance sheets - they chose to turn their heads and do nothing. It should also be noted that it wasn't just Freddie and Fannie that were not well capitalized enough. It was also Lehman, Bear Stearns, Merrill Lynch, Citigroup, Wachovia, IndyMac, AIG, and many other financial institutions, all of whom were not government entities! In this sense, the GSEs were behaving like their private market competitors.
It should also be noted in the links provided that the criticism was that "the government forced lending through the GSEs via the CRA." The articles leave the impression that the CRA was a primary cause of the housing debacle. None of the articles mention - anywhere - the volume and the scale of the borrowing through the CRA and nor subsequent default rates. Now, in the first posts in the thread, we know. It was less than 10%. Pointing out that the government mandated risky lending through the CRA does not anywhere prove causality. The empirical evidence is that it was not.
THANK YOU for explaining this so well Toro.
Care
