CRA Not to Blame for Housing Debacle

[edthecynic]

If CRA loans are such a great investment why would the government have to force banks to make them?

banks were discriminating, breaking the law, and not serving the people in poorer neighborhoods with services they offered to ALL of their other customers.

simple as that....

once CRA was passed, banks began loaning to those people wanting to buy a home in their poorer neighborhood....for the past near 40 years, millions of poor people were then able to get these smaller home loans for their cheaper housing in their poorer neighborhoods at higher interest rates than the basic conventional loan due to their supposed higher risk...and they have kept in good standing for the most part....many have paid off these loans, over the 40 some years.

Just because a person works and is still poor does not mean they are at a high risk for the banks..... my inlaws were piss poor, got a loan (at a higher interest rate) for their home, which was $7000 dollars, and they paid it off after 20 years....homes in richer neighborhoods were running about $35k.....when they bought theirs for the $7k.....

just because one is not wealthy, does not mean they should not be given a chance to buy a home of lesser value, that they can afford.

MOST SUBPRIME LOANS issued to customers WERE NOT issued to custmers in the CRA Mandate areas....

I truly don't know how much CLEARER this can be frank?

there WAS NO GVT mandate Frank....the banks CHOSE VIA FREEWILL to loan haphazardly.

No, Care, banks were exercising their fiduciary responsibility in giving loans were they saw the best chance of getting the return that they, as a business, required.

It is your progressive misunderstanding of the role of both business and of government that forces you to hold the jaundiced view i.e., "banks were discriminating, breaking the law, and not serving the people in poorer neighborhoods..."

This view belongs in the pew, but not in the boardroom.
And is the best evidence that Democrat, liberal, progressive policies caused the crisis.


"there WAS NO GVT mandate Frank....the banks CHOSE VIA FREEWILL to loan haphazardly."
While it is absolutely essential for those of your perspective to propound this mistaken viewpoint, the facts run counter...


"a. Congress passed a bill in 1975 requiring banks to provide the government with information on their lending activities in poor urban areas. Two years later, it passed the Community Reinvestment Act (CRA), which gave regulators the power to deny banks the right to expand if they didn’t lend sufficiently in those neighborhoods. In 1979 the FDIC used the CRA to block a move by the Greater NY Savings Bank for not enough lending.

b. In 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income.

c, ACORN then attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers.

d. Clinton Administration housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs.

e. .... Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, ...

f. Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations "

For the full article...which you should peruse...see here:Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009


I challenge you to find any errors in the above. If you cannot, then you should retract "there WAS NO GVT mandate Frank....the banks CHOSE VIA FREEWILL to loan haphazardly."

The obvious "error" is the standard CON$ervative deception, tell just enough truth and then shut up, or in other words, lie to someone's ignorance.

Clearly there is no mention of Bush's ADDI in your smokescreen even though your own link alludes to it without naming it outright to protect the guilty. Those "legislators" were Bush and the GOP controlled Congress and the legislation was the American Dream Downpayment Initiative (ADDI) which changed the rules to allow no downpayment loans for more than the house was worth to people with bad credit who could not keep up with the payments and who were at least 20% below the standard for the neighborhood they were buying into.

From your own link:

Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

Your own link proves Bush's ADDI burst the housing bubble!!!!

 

[Toro]

The Right argues that we all have individual responsibility. Yet PC just argued that banks had a "fiduciary duty" to make bad loans to get a return.

NO she did not here's what she said.

No, Care, banks were exercising their fiduciary responsibility in giving loans were they saw the best chance of getting the return that they, as a business, required.

Whatever.

Bank executives do not have a fiduciary "responsibility" to make bad loans either.

 

[Toro]

From your own link:

Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

Your own link proves Bush's ADDI burst the housing bubble!!!!

The other problem with this line of thinking was that most subprime loans that were securitized and packaged into CDOs were not guaranteed by Freddie and Fannie.

Oh, and Bush had little to do with this. Liberals should stop blaming his as well.

 

[bigrebnc1775]

The Right argues that we all have individual responsibility. Yet PC just argued that banks had a "fiduciary duty" to make bad loans to get a return.

NO she did not here's what she said.

No, Care, banks were exercising their fiduciary responsibility in giving loans were they saw the best chance of getting the return that they, as a business, required.

Whatever.

Bank executives do not have a fiduciary "responsibility" to make bad loans either.

OH so now it's what ever? But because the government forced the banks to make bad loans they had too.

 

[bigrebnc1775]

From your own link:

Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit.

Your own link proves Bush's ADDI burst the housing bubble!!!!

The other problem with this line of thinking was that most subprime loans that were securitized and packaged into CDOs were not guaranteed by Freddie and Fannie.

Oh, and Bush had little to do with this. Liberals should stop blaming his as well.

Fannie And Freddie Join The PartyPrior to the downgrade and the cloud that eventually hung over subprime securities, even Fannie Mae and Freddie Mac, once known for buying the safest kind of mortgages, got into the game. Following an accounting scandal that temporarily slowed down their mortgage-buying business between 2003-2005, Fannie and Freddie felt compelled to compete with Wall Street for a share of all those subprime loans being sold by their originators. So Fannie and Freddie lowered their standards, just as the lenders had done. They began buying lesser-quality mortgages, including subprime loans, exactly the kind they avoided years earlier.
News Headlines


Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

 

[Toro]

NO she did not here's what she said.

Whatever.

Bank executives do not have a fiduciary "responsibility" to make bad loans either.

OH so now it's what ever? But because the government forced the banks to make bad loans they had too.

Subprime CRA loans were a tiny fraction of the total mortgage market. The conervative argument is that it may have been small but it lowered lending standards for the entire market. Even if you accept that CRA loans were worse, that does not absolve the executives from making shitty loans across the rest of the vast mortgage market. Personal responsibility and fiduciary responsibility, remember?

 

[Ravi]

No one forced banks to loan anything to anyone. The CRA simply made it illegal to charge different interest rates based on skin color.

 

[bigrebnc1775]

Whatever.

Bank executives do not have a fiduciary "responsibility" to make bad loans either.

OH so now it's what ever? But because the government forced the banks to make bad loans they had too.

Subprime CRA loans were a tiny fraction of the total mortgage market. The conervative argument is that it may have been small but it lowered lending standards for the entire market. Even if you accept that CRA loans were worse, that does not absolve the executives from making shitty loans across the rest of the vast mortgage market. Personal responsibility and fiduciary responsibility, remember?

Really? so if obama is suing a bank using the CRA against them would that count as the government forcing banks to make loans?
Obama Sued Citibank Under CRA to Force it to Make Bad Loans – UPDATED
Case Name
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill. ) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages.

U.S. District Court Judge Ruben Castillo certified the Plaintiffs’ suit as a class action on June 30, 1995. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 322 (N.D. Ill. 1995). Also on June 30, Judge Castillo granted Plaintiffs’ motion to compel discovery of a sample of Defendant-bank’s loan application files. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 338 (N.D. Ill. 1995).

Obama Sued Citibank Under CRA to Force it to Make Bad Loans – UPDATED The IUSB Vision Weblog

 

[PoliticalChic]

No, Care, banks were exercising their fiduciary responsibility in giving loans were they saw the best chance of getting the return that they, as a business, required.

It is your progressive misunderstanding of the role of both business and of government that forces you to hold the jaundiced view i.e., "banks were discriminating, breaking the law, and not serving the people in poorer neighborhoods..."

This view belongs in the pew, but not in the boardroom.
And is the best evidence that Democrat, liberal, progressive policies caused the crisis.


"there WAS NO GVT mandate Frank....the banks CHOSE VIA FREEWILL to loan haphazardly."
While it is absolutely essential for those of your perspective to propound this mistaken viewpoint, the facts run counter...


"a. Congress passed a bill in 1975 requiring banks to provide the government with information on their lending activities in poor urban areas. Two years later, it passed the Community Reinvestment Act (CRA), which gave regulators the power to deny banks the right to expand if they didn’t lend sufficiently in those neighborhoods. In 1979 the FDIC used the CRA to block a move by the Greater NY Savings Bank for not enough lending.

b. In 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income.

c, ACORN then attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers.

d. Clinton Administration housing secretary, Henry Cisneros, declared that he would expand homeownership among lower- and lower-middle-income renters. His strategy: pushing for no-down-payment loans; expanding the size of mortgages that the government would insure against losses; and using the CRA and other lending laws to direct more private money into low-income programs.

e. .... Freddie Mac, for instance, started approving low-income buyers with bad credit histories or none at all, ...

f. Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations "

For the full article...which you should peruse...see here:Obsessive Housing Disorder by Steven Malanga, City Journal Spring 2009


I challenge you to find any errors in the above. If you cannot, then you should retract "there WAS NO GVT mandate Frank....the banks CHOSE VIA FREEWILL to loan haphazardly."

SHHHH.... that's a word those on the left have no concept of
responsibility

Where is the responsibility from the Right?

The Right argues that we all have individual responsibility. Yet PC just argued that banks had a "fiduciary duty" to make bad loans to get a return. The Right's whole argument on the CRA is that it lowered lending standards, causing a Housing Bubble. Putting aside the incorrect notion that executives have a fiduciary duty to make bad business decisions, this argument absolves individuals of their individual responsibility to act in a prudent manner (which in fact violates an individuals fiduciary duty).

The Right doesn't usually buy blaming society when an individual, or many individuals, do the wrong thing. The Right argues that every individual makes a choice, and every individual should bear the consequences of that choice. Yet the Right is blaming society for the Housing Crisis, saying people "had" to lower their credit standards universally because of this one small part of the market. People did not have to lower their credit standards. Those were choices made by individuals.

"The market" is a collective. It is a vast group of individuals setting prices. Saying "Everyone else was doing it, so we have to do it to" - which is what the Right is arguing when they say credit standards were lowered because of the CRA - is no different than someone trying to absolve their bad behavior by blaming society.

I track the performance of over 500 publicly traded banks and thrifts. The majority of those banks and thrifts made money during the Financial Crisis. Many banks acted prudently. So banks did not have to lower their lending standards across the market in response to this one small part of the lending market.

" Yet PC just argued that banks had a "fiduciary duty" to make bad loans to get a return. "

No I didn't .

The point that either you missed, or I didn't make clearly- although I believe I've said the same thing in different ways- is that the industry should not have been hounded to give loans to folks who did not fit the characteristics of GOOD loan risks.

Folks on the left pretend that anyone who doesn't do their bidding is evil...bankers are evil, white folks are evil, the country is evil....

No: 'redlining' is spotlighting areas that are outside of the risk-reward theatre that a private business is interesting in serving, not spotlighting black folks.....
although the two may not, in some places, be mutually exclusive.

 

[Toro]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

 

[PoliticalChic]

No one forced banks to loan anything to anyone. The CRA simply made it illegal to charge different interest rates based on skin color.

And, wasn't there a clause in it that prevented bankers from wearing white sheets and pointy hoods?

 

[GWV5903]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

And you fail to understand the effects of CRA, it created a culture in lending to allow sub standard borrowers a path to home ownership, prior to CRA this type of lending never existed....

 

[bigrebnc1775]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

so what are the standards or requirements set by the CRA that a bank must meet to give a loan to a person?

 

[Toro]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

And you fail to understand the effects of CRA, it created a culture in lending to allow sub standard borrowers a path to home ownership, prior to CRA this type of lending never existed....

So what? You're blaming society for the actions of individuals? How very liberal of you.

Individuals chose to go outside the CRA mandate to extend loans they had no business extending. And they did it on a tremendous scale, dwarfing anything to do with the CRA.

Yes, the massive global housing bubble was caused by extending a small slice of the mortgage market to poor people. Got it.

 

[PoliticalChic]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

Are you demanding that, to win this debate, one must demostrate that the CRA alone is, was, responsible for the crisis?

I understand that it is your thread...

but my premise is that, as it has done in so many areas of life, the government injected itself into the home ownership area, and this is the primary problem that led up to the crisis.

The corollary to said argument is that the various policies..CRA, GRE's, HUD, Dodd and Frank, - all demonstrably Democrat- are the proximate causes.

 

[Toro]

" Yet PC just argued that banks had a "fiduciary duty" to make bad loans to get a return. "

No I didn't .

The point that either you missed, or I didn't make clearly- although I believe I've said the same thing in different ways- is that the industry should not have been hounded to give loans to folks who did not fit the characteristics of GOOD loan risks.

Folks on the left pretend that anyone who doesn't do their bidding is evil...bankers are evil, white folks are evil, the country is evil....

No: 'redlining' is spotlighting areas that are outside of the risk-reward theatre that a private business is interesting in serving, not spotlighting black folks.....
although the two may not, in some places, be mutually exclusive.

Got it. I mis-read what you originally wrote. My mistake.

 

[Toro]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

Are you demanding that, to win this debate, one must demostrate that the CRA alone is, was, responsible for the crisis?

I understand that it is your thread...

but my premise is that, as it has done in so many areas of life, the government injected itself into the home ownership area, and this is the primary problem that led up to the crisis.

The corollary to said argument is that the various policies..CRA, GRE's, HUD, Dodd and Frank, - all demonstrably Democrat- are the proximate causes.

No, I'm trying to refute this notion that the CRA caused the crisis. This is solely a right-wing political narrative. It did not.

Of course, the government has some effect. It is a large player in the mortgage market. But all bubbles are a creation of excess credit. All of them. So the GSEs play a role in that they provide liquidity to the mortgage market. And they became a systemic risk not because of the liquidity they provided - they have been doing that for 70 years - but because they became too leveraged, which they should not have been allowed to do. The Democrats deserve their requisite amount of blame because they are the prime enablers of Freddie and Fannie. But in this, Freddie and Fannie were acting no differently than Wall Street, which also leveraged themselves up to the hilt. It also doesn't explain why the rest of the world also experienced a housing bubble either.

The biggest influence on credit is the Federal Reserve, which is a government agency. And the Federal Reserve IMHO and the opinion of many others is the primary cause of this mess primarily by keeping interest rates too low and creating too much money, but also allowing for deregulation and refusing to even acknowledge there was a housing bubble, as Bernanke did at his Humphrey-Hawkins testimony in 2006. So if you say "the government" caused the crisis, I agree in that the Fed was the primary enabler.

However, de-regulation and Wall Street also played a significant role because both allowed and supplied the ocean of liquidity that swamped the housing markets. De-regulation and letting Wall Street do whatever it wants are primarily Republican causes. So when you are pointing fingers at the Democrats, you can point them right back at the Republicans for helping create this mess.

And, PC my dear, Dodd-Frank came after the Housing Bubble. So blaming Dodd-Frank is a tad silly.

 

[william the wie]

No one forced banks to loan anything to anyone. The CRA simply made it illegal to charge different interest rates based on skin color.

Bull, the CRA had nothing to do with race per se. It dealt solely with income levels and location. The fair lending act and other laws created a more or less playing field for wealthy and middleclass Blacks who headed out to the suburbs and let the financial structure of the ghettos collapse. The CRA was a reaction to Black flight not white flight.

 

[GWV5903]

You miss the point. No one is arguing that the government doesn't enforce CRA standards. What you haven't shown is that thus acted as a transmission mechanism throughout the rest of the mortgage market.

And you fail to understand the effects of CRA, it created a culture in lending to allow sub standard borrowers a path to home ownership, prior to CRA this type of lending never existed....

So what? You're blaming society for the actions of individuals? How very liberal of you.

Individuals chose to go outside the CRA mandate to extend loans they had no business extending. And they did it on a tremendous scale, dwarfing anything to do with the CRA.

Yes, the massive global housing bubble was caused by extending a small slice of the mortgage market to poor people. Got it.

Blaming society? FHA DPA was a direct result of Clinton turning up the heat on banks with the CRA, Sub Prime prior to this was a 20%+ DP with rates at 4 to 5 percent above par.....

Those individuals you're describing wouldn't be Clinton, Greenspan, Summer, Rubin and Levitt? Didn't they claim Brooksley Born was way off about the derivatives market? That didn't hold water either....

The goal to open up housing to anyone that could put fog on a mirror was a bad idea, and they used every means possible to do it, the CRA is we’re it all started, don't stay in denial too long....

 

[Toro]

Blaming society? FHA DPA was a direct result of Clinton turning up the heat on banks with the CRA, Sub Prime prior to this was a 20%+ DP with rates at 4 to 5 percent above par.....

Those individuals you're describing wouldn't be Clinton, Greenspan, Summer, Rubin and Levitt? Didn't they claim Brooksley Born was way off about the derivatives market? That didn't hold water either....

The goal to open up housing to anyone that could put fog on a mirror was a bad idea, and they used every means possible to do it, the CRA is we’re it all started, don't stay in denial too long....

If a car speeds by you 50 mph above the speed limit, it doesn't force you or everyone else to drive 50 mph above the speed limit either. You make a choice to do so.

Individuals made conscious decisions of their own volition to extend horrendous loans that had absolutely zero, zip, nada to do with the CRA. A sliver of the mortgage market did NOT cause bank executives and lending officers to start acting like madmen. Credit standards always wax and wane in the cycle, but no government policy forced banks and other mortgage providers to extend NINJAs to speculators flipping condos.