CRA Not to Blame for Housing Debacle

[Toro]

As I explained, standards were lowered, but not to the extent to cause what you said should have happened.

Right. So the minority programs only had a tangential effect on the credit crisis.

However, mortgage standards were lowered significantly. I wish I had the link but I can't find it, but there was a story in the St Pete Times three years ago about a homeless guy of no fixed address, who had no job and had no known assets, who died on the streets of Tampa. They found in his possession the deeds for five homes he purchased with mortgages he had received from various banks in the Tampa Bay region. Four of the homes had been foreclosed but one was still current.

 

[Full-Auto]

as i explained, standards were lowered, but not to the extent to cause what you said should have happened.

right. So the minority programs only had a tangential effect on the credit crisis.

However, mortgage standards were lowered significantly. I wish i had the link but i can't find it, but there was a story in the st pete times three years ago about a homeless guy of no fixed address, who had no job and had no known assets, who died on the streets of tampa. They found in his possession the deeds for five homes he purchased with mortgages he had received from various banks in the tampa bay region. Four of the homes had been foreclosed but one was still current.

what is with the seperation attempt?

 

[Toro]

What do you mean?

 

[Full-Auto]

What do you mean?

When did the CRA mean poor only and not community?

 

[Toro]

Generally, CRA loans were in poorer minority neighborhoods.

 

[Full-Auto]

Generally, CRA loans were in poorer minority neighborhoods.

But that has been proven to not be true. Was it ever the real intent?

 

[Toro]

Generally, CRA loans were in poorer minority neighborhoods.

But that has been proven to not be true. Was it ever the real intent?

Most CRA loans were made in poorer, minority neighborhoods. The intent was to stop racial discrimination. Banks would "redline" neighborhoods, meaning they would take a red marker and "redline" off neighborhoods - primarily minority - where they would not make loans, even if people in the neighborhoods were creditworthy.

Whether or not you agree with this, or if the CRA program went beyond it's original intent, the point here is that CRA loans and other minority programs contributed little to the financial crisis.

 

[Terral]

Hi Toro:

"CRA Not to Blame For Housing Debacle"

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 . . .

This is more El Toro nonsense that seeks to prove a negative thesis using very few facts to support anything. BTW, Toro is hypothesizing about the Community Reinvestment Act (Wiki) that has been changed/revised over and over and over again to beat banks over the head with increasing 'obligations' and 'responsibilities' in a what has become a 'deflationary housing market.' To accurately understand the "Housing Debacle," then forget about banking regulations and move over to the 'Consumer Base' side of the equation:

The Housing/Mortgage/Foreclosure/Credit Crisis is a symptom of the Outsourcing/HB-1 Visa-Guest Worker/Illegal Alien Foreign National/Bankruptcy Crisis created by the ‘displacement’ of U.S. Workers from the Local Market Place. Jobs are being shipped overseas at record pace with the NAFTA Stupidity (export of manufacturing base) and Outsourcing of Service Sector JOBS to India and all over God’s Green Earth. One and a half MILLION Foreign Nationals are shipped into the USA for the sole purpose of ‘displacing’ U.S. Workers from JOBS, which means your Consumer Base is taking another hit and fewer buyers are in the local market to make an offer on your home. Then add 20 to 30 Million Illegal Alien Foreign Nationals to the mix and worker ‘displacement’ sees U.S. Workers playing musical chairs with fewer and fewer JOBS and 70 percent of the GDP takes yet another hit. All of these factors have been worked into the U.S. Consumer Base Stew Pot, until the Economic and Tax Base are destroyed and local governments are forced to lay off even more Federal, State and County workers in an already-flooded unemployment situation where 900 workers are applying for 20 JOBS.

There is “NO BOTTOM” in the local housing markets, because the U.S. Consumer Base has been effectively destroyed, which is the reason that the banks and insurance companies and automakers went bust and needed a bailout in the first place. Commercial Real Estate is the next shoe to drop, which Gerald Celente explains in this video:

[ame="http://www.youtube.com/watch?v=4zdaQIbz_kA&feature=related"]Gerald Celente On The Retail And Real Estate Sectors[/ame]

The U.S. Economy Imploded last fall (Sept. 18 – October), so the FED and U.S. Treasury have been bailing their buddies out using inflationary paper that was created out of thin air to create the current “Bailout Bubble.” All of this Stimulus Hype is all about continuing to inflate the Bailout Bubble, until the U.S. Economy finally “Officially Implodes” at some point this fall. Obama is carrying on with the Bushie Bailout Fiasco, because they work for the New World Order Puppeteers now bringing in their New World Order Fascist State and all of Toro’s talk about banking regulation has nothing to do with anything at all.

No bottom in the housing market means no bottom in the stock markets, which the day traders will eventually wake up and understand just before the Coming Collapse 2009 (my Topic).

[ame="http://www.youtube.com/watch?v=_18t2_XvZRA"]Gerald Celente: Obamageddon Is Coming[/ame]

[ame=http://www.youtube.com/watch?v=vT649Mwe1H0&feature=related]Gerald Celente: Obamageddon!!! Alex Jones Interview[/ame]

GL,

Terral

 

[Paulie]

Nothing like an Alex Jones piece to shed some light on a subject.

 

[PoliticalChic]

I would generally agree that the financial debacle occurred because of events outside of the political arena.

Want to try again?

"This was a market failure, we are told, and the promise of capitalism has always been that the self-correcting mechanisms built into the system would preclude the possibility of a systemic market failure.

But the housing bubble only burst after government subsidies pushed house prices up so fast that marginal buyers could no longer afford to chase prices even higher. A bubble created by rigged financial markets and a government-sponsored obsession with home ownership is not a result of market failure, but rather, a result of bad public policy. The belief that home ownership, per se, is such a benefit that no amount of government support could be too great and no pace at which home prices rise could be too fast is the root of the crisis.

There was no market failure.

During Bill Clinton's first term, government housing policy changed substantially. After decades in which liberal politicians and thinkers devoted themselves to arguments for expanding the number of public-housing units, the disastrous condition of those units led the President, a "new Democrat," to a dramatic ideological shift in emphasis. No longer would public housing be at the top of the liberal Democratic agenda. Instead, borrowing from conservative ideas about the inestimable benefit of home ownership to the striving poor, the Clinton administration and members of his party in the House and Senate decided to use government power to achieve that aim.

In 1994, the "National Homeownership Strategy" of the Clinton administration advanced "financing strategies fueled by creativity to help homeowners who lacked the cash to buy a home or the income to make the down payments" to buy a home nonetheless. It became U.S. government policy to intervene in the marketplace by lowering the standards necessary to qualify for mortgages so that Americans with lower incomes could participate in the leveraged purchases of homes.

The goal of expanding home ownership led to the creation of new mortgage subsidies across the board. The loosening of standards became the policy of Fannie Mae and Freddie Mac, the pseudo-private "government-sponsored enterprises" that bought mortgages from originating lenders. A particular change in the tax law in 1997 encouraged many households to make buying and improving a home the primary vehicle by which they enhanced net worth. By eliminating any capital-gains tax on the first $500,000 of profits from the sale of an owner-occupied residence once every two years, Washington encouraged enterprising American families to purchase homes, fix them up, re-sell them, and then repeat the process. Flipping became a financial pastime for millions because this special advantage created a new incentive—which didn't exactly fit the model of encouraging people to remain in a stable home for many years and thereby help to stabilize the neighborhood around them."


Now, for all of you who said banks could not be forced to give loans, get this:

"The housing bubble was thus a fully rational response to a set of distortions in the free market—distortions created primarily by the public sector. The heads of large financial institutions, as Prince's remark suggested, recognized the risk-taking subsidy inherent in public policy, but felt they had no choice but to play along or fall behind the other institutions that were also responding rationally to the incentives created by government intervention.The housing collapse and its painful aftermath, including that $15 trillion wealth loss for U.S. households (so far), do not, therefore, represent a market failure. Rather, they represent the dangerous confluence of three policy errors: government policy aimed at providing access to home ownership for American households irrespective of their ability to afford it; the Fed's claim that it could not identify bubbles as they were inflating but could fix the problem afterward; and a policy of granting monopoly power to rating agencies like Standard & Poor's, Moody's, and Fitch's to determine the eligibility of derivative securities for what are supposed to be low-risk portfolios, such as pension funds."

"The long-term solution is for government to stop playing favorites, as it has for decades with housing. Home ownership should neither be penalized nor favored under government policy."
A Government Failure, Not a Market Failure - WSJ.com

 

[Toro]

The problem with that argument is that there have been government subsidies for mortgages for 60 years.

Again, this is very simple, and no one arguing otherwise has yet to refute it: If this bubble was caused by government subsidies, then it would have been the homes that were government subsidized would have risen the furthest then crashed the hardest. That did not happen. In fact, the opposite happened. Homes financed with qualifying mortgages went up the least and have fallen the least. It is simple supply and demand. If government subsidies caused demand to increase disproportionately, then the increase would have been seen disproportionately in the prices for homes funded by government-funded mortgages. Instead, homes financed outside of government subsidization went up the most and crashed the hardest.

 

[PoliticalChic]

The problem with that argument is that there have been government subsidies for mortgages for 60 years.

Again, this is very simple, and no one arguing otherwise has yet to refute it: If this bubble was caused by government subsidies, then it would have been the homes that were government subsidized would have risen the furthest then crashed the hardest. That did not happen. In fact, the opposite happened. Homes financed with qualifying mortgages went up the least and have fallen the least. It is simple supply and demand. If government subsidies caused demand to increase disproportionately, then the increase would have been seen disproportionately in the prices for homes funded by government-funded mortgages. Instead, homes financed outside of government subsidization went up the most and crashed the hardest.

Government subsidies and government policy, mostly Democrat.

And, "government subsidies for mortgages for 60 years. "

I'll go you one decade better: how about 70 years- the GRE's go back to 1938.

In an earlier post I mentioned that, as economics is not a science, it is difficult to state when the other shoe will drop, or the efficacy of a policy will be seen- in totality... in this case we know: 70 years.

The last line in the article sums it up neatly.

 

[Toro]

The Great American Bank Robbery

This is a fascinating speech by William Black, a former banking regulator. It is long but it goes into many issues regarding the financial collapse and accompanying fraud.

At minute 62, he discusses the role of the CRA in the collapse, or the lack thereof. He notes that the CRA played an insignificant role for the following reasons.

- The CRA had been around for 30 years. It had not contributed to collapse before.
- 80% of the subprime loans had been made by non-regulated entities not subject to the CRA, so their behavior was not prompted by the CRA
- The institutions that were regulated by the CRA Act did not have any CRA-ratings problems with their loan books
- The CRA Act was watered down during this decade, not strengthened, particularly under Phil Gramm. Under Bush, regulators did not put any emphasis on enforcement of the CRA Act.​

He has great stories about how the S&Ls bought the legislators in the 80s who tried to have regulators fired. The former CEO of Lincoln Savings - and a convicted fraudster criminal - discussed with a colleague having him killed.

 

[Toro]

The Community Reinvestment Act (CRA) encourages banks to expand mortgage lending in the communities in which they have branch offices, subject to maintaining overall levels of financial safety and soundness. Some have argued that this regulation forced banks to lower their credit standards and engage in riskier mortgage products in order to extend credit to lower-income individuals, who perhaps should not have received such loans. However, data provided by the Home Mortgage Disclosure Act (HMDA) reveal that loans covered by the CRA accounted for only a fraction of mortgage lending to lower-income borrowers and neighborhoods. This is especially true of higher-priced, or subprime, mortgages. CRA assessment-area lending accounted for only nine percent of higher-priced loans to lower-income borrowers and neighborhoods, while independent mortgage companies accounted for the majority. Further, the subprime share of assessment-area loans made to lower-income borrowers and lower-income neighborhoods was lower than the subprime share for all loans made between 2004 and 2006. ...

In 1980, seventy-one percent of all one-to-four family home mortgages were originated by a deposit-taking bank or thrift. However, over the last several decades, innovations in capital markets enabled companies to raise capital by selling mortgage-backed securities into the secondary market. Without deposits, the CRA did not have the jurisdiction to regulate the new independent mortgage companies.

Independent mortgage companies accounted for the majority of one-to-four family mortgage loans by 1997, the last year that the Department of Housing and Urban Development conducted its Survey of Mortgage Lending Activity. In addition, much of the banks’ share flowed through their mortgage banking subsidiaries, where they are given the option whether or not to include mortgage originations in their CRA evaluations. Combined with the increasing ability of banks to lend outside their local communities, the share of loans made within CRA assessment-areas, has steadily declined over the last 15 years.

There are many causes to the collapse of the housing market and the recent financial turmoil, but the contribution of the CRA appears marginal. While banks did engage in subprime lending in their assessment areas, they did so at a lower rate than the market in general and accounted for only a small fraction of subprime loans to lower-income borrowers and lower income neighborhoods. The data suggest that far from being forced into risky corners of the market, the institutions under the scrutiny of the CRA were crowded out by unregulated lenders.

http://www.jchs.harvard.edu/publications/governmentprograms/n08-2_park.pdf

 

[garyd]

No one is getting it. The housing debacle is going to continue ladies and Gentleman while the CRA isn't responsible directly for the mess it is a contributor. My dad's first new house was 8 grand. The payment 80 dollars a month that was mid fifties. He mad a little more than 160 a weekat that time.

The point is this the same lending institutions that finance the home buyer are not infrequently through a different dept. the same banks that loan the builder the money to build those homes. Because the price of homes has been rising at alarming rates for the last fifty years. there has been tremendous pressure on the mortgage branch to find a buyer for those homes at any and all costs.

 

[NYcarbineer]

No banks were forced to make loans to unqualified buyers. CRA was not the problem.

You want to see how the housing crisis happens, watch 'House of Cards'

Video - CNBC.com

 

[garyd]

Yep you don't get carbs. The ever increasing price of new homes which double between 1956 and 1966 doubled again by 1976 by 1986 by 1996 it had gone up by a factor of four and again by four by 2003.

Tell me carbs how many people right now spnd left than half there montly pay on housing and utilities?

 

[Toro]

A few more articles.

First, there's the timing. CRA came in 1977. The crisis came in 2007. Indeed, by 2004, the Bush administration had weakened the CRA -- and after that (though not, presumably, because of it), bubble lending really took off. Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms. Which basically leaves a stake in the heart of this particular theory. ...

In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened...

Economist's View: It Wasn't the Community Reinvestment Act
Economist's View: Yet Again, It Wasn't the Community Reinvestment Act...

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.

* 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.

...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.

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 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. ...

Conservative columnist Charles Krauthammer wrote recently 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."

Fannie and Freddie, however, 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.

What's more, 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.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."

Private sector loans, not Fannie or Freddie, triggered crisis | McClatchy

 

[Truthmatters]

How anyone everr bought that plate of shit in the first place was beyond me.

the CRA was a blip in the real story.

 

[Toro]

Those arguing that the GSEs and the CRA were the cause of the housing bubble have yet to show any causal and empirical evidence. In fact, the causal and empirical evidence suggests otherwise.

My approach to everything I have written, studied and analyzed in this space is pretty straight forward: Start with the data and evidence and go forward from there. Figure out what the “Truth” is; try to get as close to the objective reality beneath the noise in order to make intelligent investing decisions for myself and my clients.

There are others who do not share this objective. Their goals are either political (winning the next election) or ideological (having their belief system become dominant). Truth is irrelevant to these people.

Not surprisingly, these folks — many of whom contributed to the crisis in a mighty way — are desperately trying to duck responsibility for what happened. Those who helped cause the crisis are engaged in an ongoing effort to rewrite its history.

Their goal? Exonerate their own bad behavior, throw off any responsibility for the collapse, blame anything but their own ideology and horrific decision making. They want to keep pushing their tired political agendas, despite the damage they may have caused. ...

That lack of evidence, however, doesn’t stop ideologues from trying. Consider this attempt at rewriting the causes of the credit crisis by Kevin Hassett:

“The worst financial crisis in generations was set off by a massive government effort, led by the two mortgage giants, to make loans to homebuyers no matter whether they could make the payments. Lenders were willing to lend money to just about all comers, no matter how low their income. Why? Because the lenders knew Fannie and Freddie would purchase the loans from them for a high price before bundling them into securities to sell to investors.”​

Now, this makes for a fascinating narrative that plays into a number of different ideological beliefs. It exonerates the radical free market deregulators, it ignores what the private sector did, and it somehow ignores the fact that Congress was controlled by a very conservative GOP from 1994 to 2006 — the prime period of time covered leading up to and including the beginning of the crisis.

But worse than all of that, the data supporting Hassett’s position simply isn’t there.

Over the past 2 years, I have repeatedly asked the people who push this narrative to provide some evidence for their positions. I have offered a $100,000 if they could prove their case.

Specifically, I have requested some data or evidence that DISPROVED the following facts:

-The origination of subprime loans came primarily from non bank lenders not covered by the CRA;

-The majority of the underwriting, at least for the first few years of the boom, were by these same non-bank lenders

-When the big banks began chasing subprime, it was due to the profit motive, not any mandate from the President (a Republican) or the the Congress (Republican controlled) or the GSEs they oversaw.

-Prior to 2005, nearly all of these sub-prime loans were bought by Wall Street — NOT Fannie & Freddie

-In fact, prior to 2005, the GSEs were not permitted to purchase non-conforming mortgages.

-After 2005, Fannie & Freddie changed their own rules to start buying these non-conforming mortgages — in order to maintain market share and compete with Wall Street for profits.

-The change in FNM/FRE conforming mortgage purchases in 2005 was not due to any legislation or marching orders from the President (a Republican) or the the Congress (Republican controlled). It was the profit motive that led them to this action. ...​

Of course, folks like Hassett hate this factual history, as it conflicts with their goals and politics. Rather than produce evidence, they create story lines unsupported by facts.

Get Me ReWrite! | The Big Picture