CFTC chairwomon Broksley Born gave warning about derivatives.

[52ndStreet]

There has got to be something illegal, about some of those derivatives.
Some one has got to be stealing money from derivatives, and leaving us the general public, with an empty bag.

There is nothing illegal about almost all derivatives. In fact, many derivatives are created to legally get around regulations and laws.

So when these derivatives collasp, what happens to the billions of dollars that investors
invest in the derivative instruments, where does this money go?.Does the money vanish into thin air.?

 

[KissMy]

Back in the day these bankers & brokers used to jump out windows when they fucked-up. Now we give them billions so they won't get all depressed.

Call me an old-fashioned conservative, but I liked the olden days better.

 

[52ndStreet]

Back in the day these bankers & brokers used to jump out windows when they fucked-up. Now we give them billions so they won't get all depressed.

Call me an old-fashioned conservative, but I liked the olden days better.

If we allowed the Banks and brokerage houses to fail, it would have caused a domino
effect throughout the entire global economy. Then we would have had a situation a whole lot worst than 1929 depression.

 

[Toro]

So when these derivatives collasp, what happens to the billions of dollars that investors
invest in the derivative instruments, where does this money go?.Does the money vanish into thin air.?

Actually, its "trillions" of dollars.

Most derivatives are benign. They involve swapping fixed interest rates for floating interest rates, and for payments in different currencies.

However, for most other derivatives, when there is a winner, there is a loser. Thus, in theory, derivatives are a zero-sum game. The problem is when the loser gets wiped out and cannot pay the winner. Then, the money does disappear.

There are some derivatives that when a market collapses, they also collapse, and there is no winner, like the equity portion of CDOs. Those are the ones that originally imperiled the economy in 2007 and 2008. The money vanishes for those derivatives when they collapse.

 

[dilloduck]

Cool--like the end of a Monopoly game cept it's real money.--------well some of it.

 

[KissMy]

--Fall 1999-- Treasury Secretary Lawrence Summers issued a warning: "Debates about systemic risk should also now include government-sponsored enterprises, which are large and growing rapidly."

--September 1999-- New York Times "With pressure from the Clinton administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans. Fannie Mae's Raines explained that "there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market."

With this action, Fannie Mae put itself at substantial risk in the event of an economic downturn. "From the perspective of many people, including me, this is another thrift industry growing up around us," warned Peter Wallison, a fellow in financial policy studies at the American Enterprise Institute (AEI). "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry." The danger was known.

A study by Freddie Mac, confirming earlier Federal Reserve and FDIC studies, contradicts race discrimination arguments for CRA. The study found that African-Americans with annual incomes of $65,000-$75,000 have on average worse credit records than whites making under $25,000. This showed that the difficulty in qualifying was not because of race but bad credit records. Accordingly, the Federal Reserve Bank of Dallas entitled a paper "Red Lining or Red Herring?"

"City Journal warned that the Clinton administration had turned CRA into 'a vast extortion scheme against the nation's banks,'committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers."

By this point the seeds of the largest economic destruction in the history of mankind were firmly planted & starting to sprout. Many tried to shut this down but Bill Clinton & Congress would not listen. As you can clearly see on the chart the housing prices took off like a rocket in 1997.

As you can clearly see the GSE's Fannie & Freddie were the biggest cause of the housing bubble & meltdown.

 

[52ndStreet]

Many of these credit default swaps derivatives, were not examined to see if there was any real
money invested in them, in case they were called upon for payment.
The federal government should have required that many of the credit default swaps derivatives
were properly created and maintained over the life of the derivative.
To this day , there still is no real oversight with regards to these credit default swaps derivatives.!!?

 

[Toro]

As you can clearly see the GSE's Fannie & Freddie were the biggest cause of the housing bubble & meltdown.

Incorrect. If the GSEs were the biggest causes of the financial meltdown, then GSE-funded loans would have driven up the prices of such homes the most. In fact, the opposite occurred. If you truly believe in the efficacy of the market, then GSE-funded homes should have risen the most. Didn't happen.

Also, the people making this argument seem to understand little of what happened outside the country's borders. Other countries such as Spain, Ireland, the UK, Canada, South Africa, Australia, China, etc., also experienced housing bubbles, most of those countries experiencing even bigger housing bubbles than America. This is a tad bit of an inconvenient fact to the ideologues pushing this line, but the GSEs do not lend money abroad.

 

[KissMy]

As you can clearly see the GSE's Fannie & Freddie were the biggest cause of the housing bubble & meltdown.

Incorrect. If the GSEs were the biggest causes of the financial meltdown, then GSE-funded loans would have driven up the prices of such homes the most. In fact, the opposite occurred. If you truly believe in the efficacy of the market, then GSE-funded homes should have risen the most. Didn't happen.

Also, the people making this argument seem to understand little of what happened outside the country's borders. Other countries such as Spain, Ireland, the UK, Canada, South Africa, Australia, China, etc., also experienced housing bubbles, most of those countries experiencing even bigger housing bubbles than America. This is a tad bit of an inconvenient fact to the ideologues pushing this line, but the GSEs do not lend money abroad.

Oh how stupid you are! Every day you dumbocraps regurgitate fact less talking points & lies trying to defend criminals only to get you ass kicked. Yet you somehow desire to get out of bed come on here & do it all over again. Maybe you are just to stupid to understand that the facts prove you wrong every single time.

THE KEY IS ENFORCEMENT, FEAR OF HAVING THE US ATTORNEY GENERAL SUE YOU INTO OBLIVION! --1995--"Attorney General Janet Reno, who had already won a number of bank lending discrimination settlements, sternly announces, "We will tackle lending discrimination wherever it appears." With the new policy in full force, "No loan is exempt; no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement."

FEAR OF THE CONGRESSIONAL BLACK CAUCUS SCREWING UP YOUR BANKING BUSINESS.

FEAR OF HAVING THE US DEPARTMENT OF HOUSING & URBAN DEVELOPMENT SUE YOU INTO OBLIVION! [ame="http://www.youtube.com/watch?v=ivmL-lXNy64&feature=player_embedded"]HUD LAWSUIT[/ame]

NY Times - "But the storm has fallen with a special ferocity on black and Latino homeowners, the analysis shows. Defaults occur three times as often in mostly minority census tracts as in mostly white ones. Eighty-five percent of the worst-hit neighborhoods — where the default rate is at least double the regional average — have a majority of black and Latino homeowners."

--September 1999-- "A study by Freddie Mac, confirming earlier Federal Reserve and FDIC studies, contradicts race discrimination arguments for CRA. The study found that African-Americans with annual incomes of $65,000-$75,000 have on average worse credit records than whites making under $25,000. This showed that the difficulty in qualifying was not because of race but bad credit records. Accordingly, the Federal Reserve Bank of Dallas entitled a paper "Red Lining or Red Herring?" "City Journal warned that the Clinton administration had turned CRA into 'a vast extortion scheme against the nation's banks,'committing $1 trillion for mortgages and development projects, most of it funneled through the community organizers."

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"

THIS ALL PROVES BEYOND A SHADOW OF A DOUBT THAT THE CRA / GSE AFFIRMATIVE ACTION - SOCIALISM CAUSED THE ECONOMIC MELTDOWN!!! Just grow a spine & admit that the Congressional Black Caucus are racist who will stop at nothing to get more & more reparations from people who never benefited from & were never involved with slavery. Their poor credit scores & high default rates are due to the I am not paying the man because he owes me mentality. If OBAMACORN had spent half as much energy teaching minorities about credit & being responsible American citizens as they did going after banks this crisis would have been avoided. Instead they are taught to be African-American Dependants & how to stick it to the man.

This chart shows just as clearly as that Democrat ass kissing brown nose on your stupid face that housing prices soared in 1997 when Clinton enforced the CRA. Also the GSE's Fannie & Freddie were & still the biggest part of the meltdown.

--Fall 1999-- Treasury Secretary Lawrence Summers issued a warning: "Debates about systemic risk should also now include government-sponsored enterprises, which are large and growing rapidly."

--September 1999-- New York Times "With pressure from the Clinton administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans. Fannie Mae's Raines explained that "there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market."

With this action, Fannie Mae put itself at substantial risk in the event of an economic downturn. "From the perspective of many people, including me, this is another thrift industry growing up around us," warned Peter Wallison, a fellow in financial policy studies at the American Enterprise Institute (AEI). "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry." The danger was known.

In 2008, Fannie and Freddie have purchased about 80% of all new home mortgages in the United States. Their combined investment portfolios held mortgage assets (loans and MBSs) valued at $1.5 trillion (as of June 30, 2008) - These GSE will never pay back tax payer for losses like all the banks have.

 

[Toro]

Oh how stupid you are! Every day you dumbocraps regurgitate fact less talking points & lies trying to defend criminals only to get you ass kicked. Yet you somehow desire to get out of bed come on here & do it all over again. Maybe you are just to stupid to understand that the facts prove you wrong every single time.

No, I understand the facts. It is you who is the ideologue with an axe to grind, and someone who apparently does not understand the simple basics of markets.

The houses that went up the most were not CRA nor GSE-mortgaged homes. If you believe in the efficacy of the market, then these are the home prices that should have risen the most. That did not happen.

Your theory brushes over the fact that many other countries also had housing bubbles, many of which were worse than America's. Yet, they did not have Freddie and Fannie nor the CRA.

Feel free to refute it. You just keep rehashing the same old links and arguments without understanding the basics of markets. In the meantime -

http://www.usmessageboard.com/economy/70006-cra-not-to-blame-for-housing-debacle.html
http://www.usmessageboard.com/economy/65413-cra-did-not-cause-financial-crisis-fed.html
http://www.usmessageboard.com/economy/74190-how-deregulation-lead-to-the-financial-crisis.html
http://www.usmessageboard.com/econo...-of-regulation-contributed-to-the-crisis.html
http://www.usmessageboard.com/economy/66682-de-regulation-leads-to-banking-crises.html

 

[KissMy]

The houses that went up the most were not CRA nor GSE-mortgaged homes. If you believe in the efficacy of the market, then these are the home prices that should have risen the most. That did not happen.

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"

CRA Not to Blame for Housing Debacle
CRA Did Not Cause Financial Crisis - Fed
How Deregulation Lead to the Financial Crisis
How the Lack of Regulation Contributed to the Crisis
De-Regulation Leads to Banking Crises

See Housing price chart. The prices shot up in 1997 due to CRA enforcement. That was 2 years prior to deregulation. Deregulation allowed these already ticking time bomb risky CRA assets to be sold to other countries & banks causing the contagion to spread world wide. Deregulation was not the prime cause it just added fuel to the fire.

GSE Conservatorship "In 2008, Fannie and Freddie have purchased about 80% of all new home mortgages in the United States."

The bailout for Fannie & Freddie was larger than all the other banks combined. The other banks have paid back nearly all the tarp funds while Fannie & Freddie continue to require more tax payer funds. They will not be paying us back!

Committee on Oversight and Government Reform released a report on "The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008"

"In retrospect, President Clinton’s rebranding of prudent down payments of 10 to 20 percent as “barrier to home purchase” takes on great significance. As with the 1995 CRA reform and the Clinton Administration’s decision to allow the GSEs to count subprime loans toward their affordable housing goals, this represented a shift in government policy from one that emphasized equity of procedure to equity of outcome. This emphasis on equity of outcome inevitably created tremendous pressure on regulated institutions to make more loans to low-income borrowers. It also created pressure for secondary market investors such as Fannie Mae and Freddie Mac to buy these loans. The correspondingly lower emphasis on how the loans were being made inevitably meant less attention would be paid to their quality and sustainability.

A Freddie Mac spokeswoman later acknowledged that the Clinton HUD’s decision on subprime loans “forced us to go into that market to serve the targeted populations that HUD wanted us to serve.” Clinton’s HUD Assistant Secretary William C. Apgar, Jr. has since called the decision a “mistake,” while his former advisor Allen Fishbein called the loans that the GSEs started buying to meet their affordable housing goals “contrary to good lending practices,” and examples of “dangerous lending.” President Clinton himself acknowledged his role in efforts to loosen mortgage lending standards when he admitted that “there was possible danger in his administration’s policy of pressuring Fannie Mae…to lower its credit standards for lower- and middle-income families seeking homes.” These accumulated government affordable housing policies, including the Clinton Strategy, trapped millions of Americans in mortgages they could not afford."

"Nonprime loans, which accounted for only 34% of the GSEs’ risk exposure at the end of 2008, were suffering a 6% delinquency rate, accounting for 90% of the GSEs’ losses. Put another way, the GSEs’nonprime loans were 14 times more likely to be in serious delinquency than their prime loans. In the end, failures on nonprime GSE mortgages may account for the failure of roughly 1 in 6 home mortgages in the U.S., or 8.8 million foreclosures. The continuing losses caused by Fannie and Freddie’s binge on junk mortgages have already cost the taxpayers dearly. Under the terms of their conservatorship, the U.S. Treasury is committed to inject up to $400 billion of capital into Fannie and Freddie to offset their losses and maintain solvency. These capital injections take the form of Treasury purchases of preferred stock in the companies."

"Even more than Wall Street firms, Fannie and Freddie used high leverage to borrow money and gamble on low-down payment affordable and speculative mortgages. Unlike Wall Street, however, the GSEs did this with the mandate and the blessing of Congress and successive Administrations, which encouraged them to use their government-granted competitive advantages to engage in a race to the bottom, boosting the national homeownership rate for political gain."

"Washington must reexamine its politically expedient but irresponsible approach to encouraging higher levels of homeownership based on imprudently small down payments and too little emphasis on borrowers’ creditworthiness and ability to repay their loans."

PRIOR TO DEREGULATION --September 1999-- New York Times

"With pressure from the Clinton administration, Fannie Mae eased credit requirements on loans it would purchase from lenders, making it easier for banks to lend to borrowers unqualified for conventional loans. Fannie Mae's Raines explained that "there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market."

With this action, Fannie Mae put itself at substantial risk in the event of an economic downturn. "From the perspective of many people, including me, this is another thrift industry growing up around us," warned Peter Wallison, a fellow in financial policy studies at the American Enterprise Institute (AEI). "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry." The danger was known.

 

[uscitizen]

Had the dereg not happened where would we be?

 

[The Rabbi]

Let the market decide....

And look where it got us.

The market can not effectivly regulate itself. So what does the Federal government plan to do?

Bullshit.
The market does regulate itself. IN a free market all the players in derivatives would be out of business. Instead gov't has propped them up and assured them they can go back to playing russian roullette with taxpayers' money.
Whatever the FedGov plans to do, it will make the problem worse, not better.

 

[KissMy]

Had the dereg not happened where would we be?

As per my previously posted times article published prior to deregulation: We would still be bailing out Fannie, Freddie, & the banks. Deregulation only changed the size of the bailout.

 

[52ndStreet]

I read now on the BBC news website, that it was a currency debt default swap, that helped to cause the Greek economy to collasp. The Currency derivative swap was designed by Goldman Sachs.

 

[Jurginvoncelle]

Our money doesn't have a gold or silver standard anymore. We cant even make a copper penny, 100 pieces of copper costs more than a dollar to make from just the materials alone!

Our money is worth because "We say so"
Our banks loan the "we say so dollars" in good faith that they are worth something. But fear and faith are opposites.

Now if our credit unions have only assets based upon "borrowing capital" what happens when we don't have enough "we say" so to go around? Print more? Worse we bet on bets backed up with insurance, insured against other insurance, with no regulation.

Who has their hand in who's pocket? And how much is owed to whom? What is a dollar worth? And if our banks are not saved, then what happens to our monetary credibility or rather credit-ability?

I am for some regulation; we know what happened, who are responsible, and how to keep it from happening again. Question is will they fix it or be paid-off?

 

[52ndStreet]

Our money doesn't have a gold or silver standard anymore. We cant even make a copper penny, 100 pieces of copper costs more than a dollar to make from just the materials alone!

Our money is worth because "We say so"
Our banks loan the "we say so dollars" in good faith that they are worth something. But fear and faith are opposites.

Now if our credit unions have only assets based upon "borrowing capital" what happens when we don't have enough "we say" so to go around? Print more? Worse we bet on bets backed up with insurance, insured against other insurance, with no regulation.

Who has their hand in who's pocket? And how much is owed to whom? What is a dollar worth? And if our banks are not saved, then what happens to our monetary credibility or rather credit-ability?

I am for some regulation; we know what happened, who are responsible, and how to keep it from happening again. Question is will they fix it or be paid-off?

If the American dollar, as you say, is worth nothnig, then what about these PIGS European
countries currencies?, what is their money worth?.What is the Euro worth?? I still prefer the American dollar over all these PIGS countries currencies. The business of the world is
done in dollars. I don't accept what many of you people who say the American dollar is not
worth anything. I think that is all false. Its worth more than many of the other major currencies in the world. If the American dollar is not worth anything, why is it in such big demand?!!?
other countries currencies.

 

[Toro]

See Housing price chart. The prices shot up in 1997 due to CRA enforcement. That was 2 years prior to deregulation. Deregulation allowed these already ticking time bomb risky CRA assets to be sold to other countries & banks causing the contagion to spread world wide. Deregulation was not the prime cause it just added fuel to the fire.

This is false causality.

No, the primary cause of the housing bubble was easy money. Deregulation had a significant effect but was minor compared to the excess creation of money. CRA had zero, zip, nada to do with it. The GSEs had an effect, but not in the way you described it. The GSEs were over-leveraged entities that had too little equity in their balance sheets, and had become a systemic risk to the financial system. That is valid criticism of the Democrats in Congress. But it is no different than the systemic risk arising from other over-leveraged entities such as AIG, Bear Stearns, Lehman, Merrill, Citi, Wachovia, etc.

The CRA did not exist in Spain. The GSEs did not exist in the UK or Ireland. Those countries had much bigger housing bubbles than America's. The only developed countries that did not have a boom in housing were low growth companies with high degrees of financial regulation, i.e. France, Germany, Japan. The GSEs and the CRA had little to do with the housing bubble.

 

[KissMy]

See Housing price chart. The prices shot up in 1997 due to CRA enforcement. That was 2 years prior to deregulation. Deregulation allowed these already ticking time bomb risky CRA assets to be sold to other countries & banks causing the contagion to spread world wide. Deregulation was not the prime cause it just added fuel to the fire.

This is false causality.

No, the primary cause of the housing bubble was easy money. Deregulation had a significant effect but was minor compared to the excess creation of money. CRA had zero, zip, nada to do with it. The GSEs had an effect, but not in the way you described it. The GSEs were over-leveraged entities that had too little equity in their balance sheets, and had become a systemic risk to the financial system. That is valid criticism of the Democrats in Congress. But it is no different than the systemic risk arising from other over-leveraged entities such as AIG, Bear Stearns, Lehman, Merrill, Citi, Wachovia, etc.

The CRA did not exist in Spain. The GSEs did not exist in the UK or Ireland. Those countries had much bigger housing bubbles than America's. The only developed countries that did not have a boom in housing were low growth companies with high degrees of financial regulation, i.e. France, Germany, Japan. The GSEs and the CRA had little to do with the housing bubble.

The CRA as the law was written should have been very small but it was wielded as heavy handed threat. Read (House financial subcommittee transcript pages 23 to 26) They talk about the CRA commitments for many of these major banks. They mention Chase Bank commitments for $800 billion over ten years. Congress used the CRA to squeeze bank commitments larger than the TARP bailout from each of these banks. Think back to when Bill Clinton left office & he moved to Harlem. He did this because he knew these CRA commitments were going to rebuild the inner cities & make him appear like a god to these people.

Deregulation (very bad) & low interest rates were amplified by forcing lower lending standards. If you have extreemly high lending standards & near zero interest rates it is like pushing on a string, because the only ones qualified to barrow are AAA credit like the government. Just like now that low interest rate pushing on a string is not causing the M3 money supply to rise, in fact it is still dropping like a rock. Now take the reverse & lend to anyone you can convince to sign a loan because who cares the government is backing the money with GSEs so even if interest rates were at 8% you could always find someone willing to take your money & not pay it back. This scenario caused the M3 to skyrocket.

In the grand scheme of things the GSEs played a much larger role than the CRA. As you properly stated leverage was by far the biggest problem. Fannie Mae's criminal CEO Frank Raines convinced the Congressional Black Caucus that a 100:1 leverage ratio on homes was risk-less. The GSE's actually achieved a 70:1 leverage ratio. The average bailed-out bank leverage ratio was less than half that at 29:1. Prudent sustainable ratios should be in the mid teens. Even without deregulation & low interest the GSE's high leverage ratios & low lending standards would have landed them into bail-out conservatorship, but deregulation did make it worse.

As for Europe & other countries I know they bought a bunch of our GSEs stocks & bonds along with toxic CDOs from US due to AAA ratings. I do not know about their regulations but they had even higher leverage ratios. RBS was at 74:1. That is scary dumb.

 

[Toro]

The CRA as the law was written should have been very small but it was wielded as heavy handed threat. Read (House financial subcommittee transcript pages 23 to 26) They talk about the CRA commitments for many of these major banks. They mention Chase Bank commitments for $800 billion over ten years. Congress used the CRA to squeeze bank commitments larger than the TARP bailout from each of these banks. Think back to when Bill Clinton left office & he moved to Harlem. He did this because he knew these CRA commitments were going to rebuild the inner cities & make him appear like a god to these people.

Deregulation (very bad) & low interest rates were amplified by forcing lower lending standards. If you have extreemly high lending standards & near zero interest rates it is like pushing on a string, because the only ones qualified to barrow are AAA credit like the government. Just like now that low interest rate pushing on a string is not causing the M3 money supply to rise, in fact it is still dropping like a rock. Now take the reverse & lend to anyone you can convince to sign a loan because who cares the government is backing the money with GSEs so even if interest rates were at 8% you could always find someone willing to take your money & not pay it back. This scenario caused the M3 to skyrocket.

In the grand scheme of things the GSEs played a much larger role than the CRA. As you properly stated leverage was by far the biggest problem. Fannie Mae's criminal CEO Frank Raines convinced the Congressional Black Caucus that a 100:1 leverage ratio on homes was risk-less. The GSE's actually achieved a 70:1 leverage ratio. The average bailed-out bank leverage ratio was less than half that at 29:1. Prudent sustainable ratios should be in the mid teens. Even without deregulation & low interest the GSE's high leverage ratios & low lending standards would have landed them into bail-out conservatorship, but deregulation did make it worse.

As for Europe & other countries I know they bought a bunch of our GSEs stocks & bonds along with toxic CDOs from US due to AAA ratings. I do not know about their regulations but they had even higher leverage ratios. RBS was at 74:1. That is scary dumb.

You aren't showing a casual link between the housing bubble and the CRA. There have been empirical studies which have concluded the CRA did not cause 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 wasn’t 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 weren’t 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.

Don’t Blame CRA (The Sequel) - Real Time Economics - WSJ

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.

Fed’s Kroszner: Don’t Blame CRA - Real Time Economics - WSJ

Its hard to believe that 6% of subprime loans caused the housing crisis while the other 94% did not.

And what exactly in the CRA, or the GSEs for that matter, cause all of the behavior of the banks such as these?

• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?

• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?

• What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie?

• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?

• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?

• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?

• How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time?

• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?)

• The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ?

• Did the GSEs require banks to not check credit scores? Assets? Income?

• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood

• What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?

The answer to all of the above questions is no, none, and nothing at all.

The Big Picture