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Yes, the Community Reinvestment Act Really Did Help Cause the Housing Crisis
March 17, 2009 09:42 AM ET | James Pethokoukis
There has been a lot of push back against the idea that the Community Reinvestment Act nudged banks to give mortgages to people who should have not gotten them. But then here comes this fantastic story, courtesy of the Boston Business Journal, about East Bridgewater Savings in Boston:
Bad or delinquent loans? Zero. Foreclosures? None. Money set aside in 2008 for anticipated loan losses? Nothing. ... The bank even squeaked out a profit of $87,000. And its Tier 1 risk-based capital ratio was 31.6 percent, or more than three times higher than many community banks in Massachusetts. Were paranoid about credit quality, Petrucelli said. The 62-year-old chief executive has run the bank since 1992.
Yet the FDIC has turned up the heat on Petrucelli's bank, giving it an apparently rare "needs to improve rating," for not making more risky loans under the Community Reinvestment Act. Here is how the FDIC puts it: There are no apparent financial or legal impediments that would limit the banks ability to help meet the credit needs of its assessment area. The FDIC examiners also faulted East Bridgewater "for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages."
Me: How many East Bridgewaters are out there that knuckled under to the pressure and started handing out mortgages to whomever? I am not saying that CRA is the only factor here. There is plenty of blame to go around, regulators, Alan Greenspan, derivatives desks on Wall Street. But to let CRA and its enablers off the hook is ridiculous.
I saw this. They've been doing this for decades. The government bullies banks to give bad loans. So who's really to blame for this economic mess?
I saw this. They've been doing this for decades. The government bullies banks to give bad loans. So who's really to blame for this economic mess?
Again I say ... did the government also put guns to the heads of the citizens and force them to take the loans?
Really, who is to blame ...
I saw this. They've been doing this for decades. The government bullies banks to give bad loans. So who's really to blame for this economic mess?
Again I say ... did the government also put guns to the heads of the citizens and force them to take the loans?
Really, who is to blame ...
We're talking about bad loans here. The people who get them only care about living in a nice big house. Paying off the loan is the farthest thing from their mind. The market has a built-in fail-safe to handle this: companies that give out bad loans go out of business. Unfortunately, the government has short-circuited the fail-safe. Therefore, the government is to blame.
I thought it was more like brokers, borrowing from banks and giving bad loans and selling MBS? It's all so confusing, I can't find the ball anywhere.
Again I say ... did the government also put guns to the heads of the citizens and force them to take the loans?
Really, who is to blame ...
We're talking about bad loans here. The people who get them only care about living in a nice big house. Paying off the loan is the farthest thing from their mind. The market has a built-in fail-safe to handle this: companies that give out bad loans go out of business. Unfortunately, the government has short-circuited the fail-safe. Therefore, the government is to blame.
Oh ... so Americans are stupid and short sighted now ... I get it.
I thought it was more like brokers, borrowing from banks and giving bad loans and selling MBS? It's all so confusing, I can't find the ball anywhere.
Aaah ... the nail on the head. There is no ball. This is the whole problem, everyone just keeps looking for people to blame when everyone is to blame.
We're talking about bad loans here. The people who get them only care about living in a nice big house. Paying off the loan is the farthest thing from their mind. The market has a built-in fail-safe to handle this: companies that give out bad loans go out of business. Unfortunately, the government has short-circuited the fail-safe. Therefore, the government is to blame.
Oh ... so Americans are stupid and short sighted now ... I get it.
Not all, as has been said over and over again, significantly more than 90% pay on time, everytime.
Oh ... so Americans are stupid and short sighted now ... I get it.
Not all, as has been said over and over again, significantly more than 90% pay on time, everytime.
Paying interest only doesn't help, even though it still counts as "on time." However it doesn't give the lender any profit to work with, ultimately driving the out of business.
However that wasn't even the point I was making so I digress ... the point was ... EVERYONE is to blame because either we made bad choices and took advantage of a flaw in the system (those who lived beyond their means) or we let it happen without protesting until it was too late.
Kit it's damn hard to grouse abput something you aren't really aware of as a problem until well after it it's too damn let to do anything about it. .
Kit it's damn hard to grouse abput something you aren't really aware of as a problem until well after it it's too damn let to do anything about it. .
What about the people getting loans on their homes or to buy their homes knowing that they will likely be unable to ever pay it off? You forget this is more than just a few bad choices by a few people. Taking the blame away from these people is like saying it's your fault your are sick and not the flu virus.
So now you're saying it's the people who took the loan's fault? Agreed. However, if the banks were practicing what had been the traditional methods of approval, those people would have been turned down. The banks would not have changed their methods, the risks were too great, if not pressured by the Fed to do so. As the OP said, it's still going on with 'well run banks'....... EVERYONE is to blame because either we made bad choices and took advantage of a flaw in the system (those who lived beyond their means) or we let it happen without protesting until it was too late.
Kit it's damn hard to grouse abput something you aren't really aware of as a problem until well after it it's too damn let to do anything about it. .
What about the people getting loans on their homes or to buy their homes knowing that they will likely be unable to ever pay it off? You forget this is more than just a few bad choices by a few people. Taking the blame away from these people is like saying it's your fault your are sick and not the flu virus.
But you said,So now you're saying it's the people who took the loan's fault? Agreed. However, if the banks were practicing what had been the traditional methods of approval, those people would have been turned down. The banks would not have changed their methods, the risks were too great, if not pressured by the Fed to do so. As the OP said, it's still going on with 'well run banks'....... EVERYONE is to blame because either we made bad choices and took advantage of a flaw in the system (those who lived beyond their means) or we let it happen without protesting until it was too late.
