What caused the eonomic meltdown?

[TakeAStepBack]

Mish's Global Economic Trend Analysis: How the CRA Fueled the Housing Bubble

Community Reinvestment Act: Separating Fact From Fiction - Investors.com

Investor's Business Daily takes apart ACORN and the CRA in an editorial Community Reinvestment Act: Separating Fact From Fiction

In light of the Obama administration's stated goal of expanding the CRA, separating fact from fiction regarding this issue is of towering importance — to set the historic record straight and to prevent another financial calamity.

FICTION: Because the CRA was passed in 1977, long before the subprime crisis, it couldn't have caused the recent explosion in bad loans.

FACT: The toothless 1977 regulations fully expired in July 1997, when President Clinton rewrote them to toughen CRA enforcement as part of a crusade to close the "mortgage gap" between blacks and whites.

For the first time, banks were required to show results. One of the five performance criteria in the "lending test" — the most heavily weighted component of the CRA exam — was adopting "flexible lending practices" to address the credit needs of poor borrowers in "predominantly minority neighborhoods." Banks that didn't bend their underwriting rules risked flunking the exam.

Ex-Federal Reserve Board Gov. Lawrence Lindsey, a staunch CRA defender, acknowledges that the changes "did contribute to a downgrading of credit standards."

FICTION: "Many of these (CRA) loans were not very risky," the FCIC report claims.

FACT: Studies show that CRA loans have higher delinquencies and defaults and act as a major drag on bank earnings. In 2008, CRA loans accounted for just 7% of Bank of America's total mortgage lending, but 29% of its losses on home loans. Also, banks with the highest CRA ratings tend to have the lowest safety and soundness ratings.

FICTION: Only 6% of subprime loans were originated by banks subject to the CRA, so the vast majority of risky lending was not tied to the law.

FACT: Among other things, the figure does not count the trillions of dollars in CRA "commitments" that WaMu, BofA, JPMorgan Chase, Citibank, Wells Fargo and other large banks pledged to radical inner-city groups like Acorn, Greenlining and Neighborhood Assistance Corp. of America (NACA) after they used the public comment process to protest bank merger applications on CRA grounds.

All told, they shook down banks for $4.6 trillion in such commitments before the crisis, boasts a report by the National Community Reinvestment Coalition, or NCRC, the nation's top CRA lobbyist (which conveniently removed the report from its website during the FCIC hearings).

FICTION: "These loans performed well," the FCIC report maintained.

FACT: Brookings found that the loan commitments were set aside for low-income minorities with "marginal credit scores" and posed a higher risk. They were even riskier than regular CRA loans, because the banks delegated underwriting authority to the nonprofit shakedown groups, which had no experience judging credit risk.

NACA thinks traditional underwriting standards are "patronizing and racist." It advertises that anyone — "regardless of how bad your credit is" — can qualify for the mortgages it's arranged through special deals with banks. Not surprisingly, one study found that its delinquency rates were eight times higher than the national average.

Banks reported delinquency rates ranging from 5% to 50% on loans made pursuant to their merger-related commitments.

Yet the FCIC refused to investigate the more than 300 CRA agreements that banks and community organizers entered into before the subprime bubble burst.

Despite repeated requests by Commissioner Peter Wallison, the panel never examined the performance of the trillions in loan commitments.

Why would Chairman Angelides steer blame away from the CRA? Because he's a big fan of the CRA. And as California state treasurer, from 1999 to 2007, he steered billions in state funds into unsafe CRA mortgages securitized by Freddie Mac.

At the time, Greenlining advised Angelides on where to invest California state funds, even providing him with its own CRA report card on "good" and "bad" banks. He has also personally benefited from CRA projects brokered by his real estate development firms, according to "The Great American Bank Robbery."

As part of the CRA racket, Angelides should have been a witness in the crisis investigation, not its chief inquisitor. With the cover-up complete, he now hopes that CRA critics will go away.

"The debate about the role of the CRA should now be over as evidence presented in the commission's report is clear," Angelides declared earlier this month.

Sorry, sir, but the debate will end when the public has all the facts, not just your cooked report.

 

[Toro]

No, they were not. And HUD REQUIRED them to lend to below the median, all the way until the federal government effectively nationalized these two institutions on taxpayer dollars. I think you might be a out of your league on finance, govt. policy and monetary policy.

Again, what do tax cuts have to do with a real estate bubble?

The argument is that capital gains tax cuts caused more money to flood into the tech and housing markets, fueling the tech and housing bubbles. Stiglitz makes this argument. It's about as valid as the CRA argument.

 

[Sallow]

No, they were not. And HUD REQUIRED them to lend to below the median, all the way until the federal government effectively nationalized these two institutions on taxpayer dollars. I think you might be a out of your league on finance, govt. policy and monetary policy.

Again, what do tax cuts have to do with a real estate bubble?

The argument is that capital gains tax cuts caused more money to flood into the tech and housing markets, fueling the tech and housing bubbles. Stiglitz makes this argument. It's about as valid as the CRA argument.

Oh..and cutting interest rates down to zero had no effect on the housing bubble either..right Toro?

 

[Toro]

The problem with the CRA argument is that if true, and if you believe markets work, then the biggest housing gains should have occurred in the CRA areas, followed by the biggest crashes. But neither happened.

Other research concludes that defaults of CRA loans were no worse than other loans.

 

[GWV5903]

That's not what happened. No one imposed any requirements to give people loans. The CRA was about getting rid of "Red Lining". Which means that loans can't be denied because building was going on in blighted areas. It had nothing to do with indivduals.

Government policies and the subprime mortgage crisis - Wikipedia, the free encyclopedia

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE) that purchase mortgages, buy and sell mortgage-backed securities (MBS), and guarantee nearly half of the mortgages in the U.S.[dubious – discuss] A variety of political and competitive pressures resulted in the GSE taking on additional risk, beginning in the mid-1990s and continuing throughout the crisis and their government takeover in September, 2008.[36][37]

HUD loosened mortgage restrictions in the mid-1990s so first-time buyers could qualify for loans that they could never get before.[38] In 1995, the GSE began receiving affordable housing credit for purchasing mortgage backed securities which included loans to low income borrowers. This resulted in the agencies purchasing subprime securities.[39] In 1996, HUD directed Freddie and Fannie to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005. In addition, HUD required Freddie and Fannie to provide 12% of their portfolio to “special affordable” loans. Those are loans to borrowers with less than 60% of their area’s median income. These targets increased over the years, with a 2008 target of 28%.[40]

And that's from dumb downed wikipedia. You're wrong. You're welcome.

And?

That still had nothing to do with the financial calamity.

Freddie and Fannie Mae were still doing due diligence on borrowers.

They were taken out of the equation, actually, when big financial firms started guaranteeing loans..

Simple question, you believe that letting people buy homes for little to no money down is good for our economy? Good for our country?

I'll wait patiently for your response...

 

[Oddball]

The problem with the CRA argument is that if true, and if you believe markets work, then the biggest housing gains should have occurred in the CRA areas, followed by the biggest crashes. But neither happened.

Other research concludes that defaults of CRA loans were no worse than other loans.

Rising tide lifts all boats, no matter how seaworthy they are or aren't.

 

[Sallow]

OK, Ed the retard, how about the cite source from the link. You babbling brook of incompetence.

How Government Stoked the Mania - WSJ.com

There are other sources for thsi information. If you want to do research, go do it. You'll find the same information.

Not that facts will stand in the way of belief with you useful idiots.

Murdoch's WSJ is even less credible than wikipedia.

Then go do your homework if you don't like the sources, you fool. I'm not playing "I dont like your sources", so I'll change the argument to your cite sources.

Fucking toolshed.

Anything Murdoch touches has tainted credibility.

 

[Toro]

The author of the Wall St. Journal piece:

Mr. Roberts is a professor of economics at George Mason University and a scholar at the Mercatus Center. His latest book is a novel on how markets work, "The Price of Everything: A Parable of Possibility and Prosperity" (Princeton University Press, 2008).

But I'm sure he just wanted to make things up to make a LOLberal scream.

GMU is the closest thing to the Austrian School there is in America. Doesn't mean he's wrong, but just sayin'.

 

[Sallow]

Government policies and the subprime mortgage crisis - Wikipedia, the free encyclopedia



And that's from dumb downed wikipedia. You're wrong. You're welcome.

And?

That still had nothing to do with the financial calamity.

Freddie and Fannie Mae were still doing due diligence on borrowers.

They were taken out of the equation, actually, when big financial firms started guaranteeing loans..

Simple question, you believe that letting people buy homes for little to no money down is good for our economy? Good for our country?

I'll wait patiently for your response...

In very limited cases? Sure.

If these sorts of loans are handled very carefully..they have a generally positive effect.

 

[Toro]

The problem with the CRA argument is that if true, and if you believe markets work, then the biggest housing gains should have occurred in the CRA areas, followed by the biggest crashes. But neither happened.

Other research concludes that defaults of CRA loans were no worse than other loans.

Rising tide lifts all boats, no matter how seaworthy they are or aren't.

Right. And when the tide goes out, the least seaworthy are exposed. But that didn't happen. Markets work, right? Then the CRA areas should have been hit the hardest.

Remember this - the biggest speculative housing gains were in the Sun Belt, in upper middle and middle class neighborhoods. This is the history of US housing bubbles.

 

[Soggy in NOLA]

The problem with the CRA argument is that if true, and if you believe markets work, then the biggest housing gains should have occurred in the CRA areas, followed by the biggest crashes. But neither happened.

Other research concludes that defaults of CRA loans were no worse than other loans.

Rising tide lifts all boats, no matter how seaworthy they are or aren't.

And God knows walking into a bank and getting a $250,000 loan based on stated income & stated assets and $0 down had no effect on the economy...

 

[TakeAStepBack]

The author of the Wall St. Journal piece:

Mr. Roberts is a professor of economics at George Mason University and a scholar at the Mercatus Center. His latest book is a novel on how markets work, "The Price of Everything: A Parable of Possibility and Prosperity" (Princeton University Press, 2008).

But I'm sure he just wanted to make things up to make a LOLberal scream.

GMU is the closest thing to the Austrian School there is in America. Doesn't mean he's wrong, but just sayin'.

And he isn't wrong. The CRA only helped pump the bubble. It was not the main event and it certainly wasn't a primary cause. But it played its role. From my post on fact adn fiction of the CRA above:

FACT: The toothless 1977 regulations fully expired in July 1997, when President Clinton rewrote them to toughen CRA enforcement as part of a crusade to close the "mortgage gap" between blacks and whites.

For the first time, banks were required to show results. One of the five performance criteria in the "lending test" — the most heavily weighted component of the CRA exam — was adopting "flexible lending practices" to address the credit needs of poor borrowers in "predominantly minority neighborhoods." Banks that didn't bend their underwriting rules risked flunking the exam.

Ex-Federal Reserve Board Gov. Lawrence Lindsey, a staunch CRA defender, acknowledges that the changes "did contribute to a downgrading of credit standards."

 

[GWV5903]

And?

That still had nothing to do with the financial calamity.

Freddie and Fannie Mae were still doing due diligence on borrowers.

They were taken out of the equation, actually, when big financial firms started guaranteeing loans..

Simple question, you believe that letting people buy homes for little to no money down is good for our economy? Good for our country?

I'll wait patiently for your response...

In very limited cases? Sure.

If these sorts of loans are handled very carefully..they have a generally positive effect.

There was nothing limited about them, from 1997 to 2008 they were the mainstay of FHA funded loans, trillions of dollars in mortgages...

What do you mean handled carefully? Are you going to hold their hands and make sure they pay their mortgages on time?

Look, you will find the facts support common sense, you put your money at risk and you are less likely to default, no money at risk, what do you think?

I just closed a home with USDA last week and the buyer is out of pocket less than $100 for a $137K home, guess who is funding that? You and I, thousands of USDA loans are funding today and every day, and guess who insures them, you and I, no MI is required...

So tell me, is this something that can be managed carefully????

 

[regent]

The real question: was it worth it? Republicans have screwed up the economy for some years now just to give the rich a few more bucks. Now, we have a choice, let the nation go down the tube for those Republican years or we try to get the nation back on a somewhat even keel.
So who is going to have to pick up the pieces for those Republican years, you and me, the average taxpayer. I hope the Republicans can come up with a few of their slogans to make the going easier, uplifting slogans, not the usual fear junk, junk, like sharing is socialism, taxing the superior hard workers is communism, if she's pregnant it wasn't rape, and the best yet, don't believe the truth.

 

[KissMy]

No, they were not. And HUD REQUIRED them to lend to below the median, all the way until the federal government effectively nationalized these two institutions on taxpayer dollars. I think you might be a out of your league on finance, govt. policy and monetary policy.

Again, what do tax cuts have to do with a real estate bubble?

The argument is that capital gains tax cuts caused more money to flood into the tech and housing markets, fueling the tech and housing bubbles. Stiglitz makes this argument. It's about as valid as the CRA argument.

Capital gains tax cuts & CRA did their part to fuel this perfect storm. There were other factors besides these 2 but these 2 were not benign factors, they contributed.

PEW Research Study - "From 1995 through the middle of this decade, homeownership rates rose more rapidly among all minorities than among whites. But since the start of the housing bust in 2005, rates have fallen more steeply for two of the nation's largest minority groups -- blacks and native-born Latinos -- than for the rest of the population"

The CRA was the stick & destruction of the Bank Holding Company Act of 1956 was the carrot waved in front of Wall-Street, Banks, Ratings agencies & Insurance companies to get them to house the poor sub-prime borrowers. - The interstate restrictions of the Bank Holding Company act were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA). The IBBEA allowed interstate mergers between "adequately capitalized and managed banks, subject to concentration limits, state laws and Community Reinvestment Act (CRA) evaluations." Other restrictions which prohibited bank holding companies from owning other financial institutions were repealed in 1999 by Gramm-Leach-Bliley Act.

GSE's do cause Housing bubbles. Look at the problems Ginni Mae caused in 1972. - "In spring 1972, a major scandal struck the Federal Housing Administration (FHA), which since passage of the Housing and Urban Development Act of 1968 and the creation of the Government National Mortgage Association (Ginnie Mae) had been responsible for helping the poor buy homes in inner-city areas via government-backed mortgages. This was financed by mortgage-backed securities, the first issues of which George Romney had announced in 1970. A number of FHA employees, along with a number of real estate firms and lawyers, were indicted for a scheme in which the value of cheap inner city homes was inflated and sold using those government-backed mortgages to black buyers who could not really afford them, and the government was stuck for the bad loans when owners defaulted. FHA was under Romney's purview, and he conceded that HUD had been unprepared to deal with speculators and had not been alert to earlier signs of illegal activity. The FHA scandal gave Nixon the ability to shut down HUD's remaining desegregation efforts with little political risk; by January 1973, all federal housing funds had been frozen."

This time this scheme was legal & no one went to jail. They all got filthy rich bankrupting families & screwing investors.

Bill Clinton and many prominent democrats pushed for the killing of "Glass Steagall". Bill Clinton personally signed all the laws that deregulated Wallstreet & turned it into a gambling casino that raises prices on citizens & steals their savings.

Feb 27, 1995 TIME: CLINTON PROPOSES BANKING REFORMS - The Clinton Administration proposed sweeping changes in the nation's banking system that would permit commercial banks to sell insurance and underwrite securities. Treasury Secretary Robert Rubin outlined the new proposal, which would allow banks to "affiliate" with Wall Street firms, insurance companies and other financial service providers. It would repeal several federal restrictions, including the Depression-era Glass Steagall Act, which forbids banks from underwriting securities or selling insurance.

New York Times Feb 27, 1995 White House Is Joining in Efforts To Loosen the Limits on Banking - The Clinton Administration plans to call this week for legislation that would allow commercial banks, securities firms and insurance companies to merge, forming giant financial services companies that would offer everything from checking accounts to mutual funds and life insurance, Federal officials say.

In a speech prepared for delivery in New York on Monday and in Congressional testimony scheduled for Wednesday, Treasury Secretary Robert E. Rubin will urge Congress to repeal the Depression-era Glass-Steagall Act, the officials said. For more than 60 years, the law has forced financial concerns to choose between owning commercial banks or owning securities companies like brokerage firms and investment banks, but not both.

Mr. Rubin also plans to call for broad changes in the Bank Holding Company Act of 1956, which has effectively barred most financial concerns from owning both commercial banks and insurance companies, said the Federal officials, who spoke on condition of anonymity. Mr. Rubin's speech will represent the first time that the Administration has taken a position on eliminating the legal and regulatory barriers among financial industries.

Regulatory changes in recent years have already allowed commercial banks, like Citibank, to begin selling stocks and mutual funds on a limited basis. But the Glass-Steagall Act still bars Citibank, for example, from merging with a brokerage firm like Merrill Lynch or an investment bank like Goldman, Sachs, which provides corporate investment advice and helps companies issue stock. The Bank Holding Company Act bars Citibank fom merging with a big insurance company like Prudential.

The Administration's plan would allow such deals, provided they complied with antitrust laws. The plan would pave the way for new consolidation in the financial system.

[ame="http://www.youtube.com/watch?v=x0k2PmF-o5Q"]Who repealed the Glass-Steagall Act?[/ame]

Nov 13, 1999 New York Times: Clinton Signs Legislation Overhauling Banking Laws - President Clinton signed into law today a sweeping overhaul of Depression-era banking laws. The measure lifts barriers in the industry and allows banks, securities firms and insurance companies to merge and to sell each other's products.

''This legislation is truly historic,'' President Clinton told a packed audience of lawmakers and top financial regulators. ''We have done right by the American people.''

The bill repeals parts of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act to level the domestic playing field for United States financial companies and allow them to compete better in the evolving global financial marketplace.

''With this bill,'' Treasury Secretary Lawrence H. Summers said, ''the American financial system takes a major step forward toward the 21st Century -- one that will benefit American consumers, business and the national economy.''

Time: 25 People to Blame for the Financial Crisis - President Clinton's tenure was characterized by economic prosperity and financial deregulation, which in many ways set the stage for the excesses of recent years. Among his biggest strokes of free-wheeling capitalism was the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act, a cornerstone of Depression-era regulation. He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. It is the subject of heated political and scholarly debate whether any of these moves are to blame for our troubles, but they certainly played a role in creating a permissive lending environment.

[ame="http://www.youtube.com/watch?v=cs3Z2Z2WMJk"]Bill Clinton Admits "I Was Wrong"[/ame]

Democrat Hud Secretary Andrew Cuomo admitted the mandate amounted to "affirmative action" lending that would result in a "higher default rate." The institution would "take a greater risk on these mortgages, yes; to give families mortgages who they would not have given otherwise, yes; they would not have qualified but for this affirmative action on the part of the bank, yes. It is by income, and is it also by minorities? Yes. "With the $2.1 billion, lending that amount in mortgages which will be a higher risk, and I'm sure there will be a higher default rate on those mortgages than on the rest of the portfolio." The CRA allowed ACORN "organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee had estimated that, as a result of CRA, $9.5 billion had gone to pay for services and salaries of the organizers."

 

[Oddball]

The problem with the CRA argument is that if true, and if you believe markets work, then the biggest housing gains should have occurred in the CRA areas, followed by the biggest crashes. But neither happened.

Other research concludes that defaults of CRA loans were no worse than other loans.

Rising tide lifts all boats, no matter how seaworthy they are or aren't.

Right. And when the tide goes out, the least seaworthy are exposed. But that didn't happen. Markets work, right? Then the CRA areas should have been hit the hardest.

Remember this - the biggest speculative housing gains were in the Sun Belt, in upper middle and middle class neighborhoods. This is the history of US housing bubbles.

Given that virtually any and every house was being given no-credit-check mortgages, what was to stop uncreditworthy people and flippers who got caught holding the bag from buying non-CRA houses?

 

[Toro]

Rising tide lifts all boats, no matter how seaworthy they are or aren't.

Right. And when the tide goes out, the least seaworthy are exposed. But that didn't happen. Markets work, right? Then the CRA areas should have been hit the hardest.

Remember this - the biggest speculative housing gains were in the Sun Belt, in upper middle and middle class neighborhoods. This is the history of US housing bubbles.

Given that virtually any and every house was being given no-credit-check mortgages, what was to stop uncreditworthy people and flippers who got caught holding the bag from buying non-CRA houses?

Nothing.

But house flippers weren't generally poor people. They were middle class people trying to get rich.

 

[Oddball]

Right. And when the tide goes out, the least seaworthy are exposed. But that didn't happen. Markets work, right? Then the CRA areas should have been hit the hardest.

Remember this - the biggest speculative housing gains were in the Sun Belt, in upper middle and middle class neighborhoods. This is the history of US housing bubbles.

Given that virtually any and every house was being given no-credit-check mortgages, what was to stop uncreditworthy people and flippers who got caught holding the bag from buying non-CRA houses?

Nothing.

But house flippers weren't generally poor people. They were middle class people trying to get rich.

I know some flippers that were just starting out who got caught holding the bag.

Point being that the CRA properties acted as a sort of financing typhoid Mary, affecting housing purchases in virtually all regions and neighborhoods.

 

[KissMy]

But house flippers weren't generally poor people. They were middle class people trying to get rich.

PEW Research Study - "From 1995 through the middle of this decade, homeownership rates rose more rapidly among all minorities than among whites. But since the start of the housing bust in 2005, rates have fallen more steeply for two of the nation's largest minority groups -- blacks and native-born Latinos -- than for the rest of the population"

 

[edthecynic]

Investor's Business Daily takes apart ACORN and the CRA in an editorial Community Reinvestment Act: Separating Fact From Fiction

Oh come on, Invested Bigots Daily has less credibility than Wikipedia. You keep going from bad to worse. Basically all you are proving is that the CON$ervoFascist Brotherhood lies in packs.