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Vicente
2010 Apr 7, 9:36am
Alan Greenspan said quite pointedly in testimony that subprime mortgages were not the root cause it was the securitization of all mortgages.
Greenspan said the subprime mortgage crisis had its root in the securitization of risky home loans into assets that were divided and sold around the world. He said the market for such securities ballooned to more than $900 billion by 2007 due mostly to strong demand from overseas investors.
The former chairman said investors' strong appetite for mortgage-backed securities artificially boosted home prices.
http://money.cnn.com/2010/04/07/news/economy/Greenspan_financial_crisis_commission/
Yes, the article says it was the securitization of RISKY HOME LOANS that caused the mortgage meltdown. "Risky home loans" is doublespeak for CRA loans.
Government intervention and artificial manipulation of the marketplace = yet another financial disaster. But don't worry, it can be fixed - by screwing the taxpayer, again.
tatupu70
2010 Apr 7, 10:12am
From the NY Times, April 7, 2010. “He (Greenspan) pointed out that the Fed had warned about sub-prime lending and low-down-payment mortgages in 1999 and again in 2001. Several witnesses explained how banks originated sub-prime mortgages, made loans to independent sub-prime companies and bought a huge number of sub-prime mortgages that it packaged into complex securities known as collateralized debt obligations. All acknowledged A SHARP DETERIORATION IN LENDING STANDARDS kept the housing market aloft and Wall Streets loan-packaging machines hummingâ€.
So, where exactly does it say anything about the CRA in there? Subprime and CRA are NOT the same thing. As has been explained to you numerous times.
tatupu70
2010 Apr 7, 10:14am
Yes, the article says it was the securitization of RISKY HOME LOANS that caused the mortgage meltdown. “Risky home loans†is doublespeak for CRA loans.
Um, no it's not. Risky home loans are loans freely made by financial institutions because they underestimated the risk. You can blame the government for poor oversight and regulation if you'd like, but it has nothing to do with the CRA.
Â¥
2010 Apr 7, 10:52am
CRA loans were by definition lower-value compared to the big stuff being moved 2004-2006.
Though in South Central LA prices in the ghetto peaked at $400K or so.
Here's an example house at random:
http://www.zillow.com/homedetails/charts/20617286_zpid,10years_chartDuration/
The mortgage meltdown was caused by lenders making loans the borrowers couldn't repay.
CRA had nothing to do with this. 80/20 no-down, negative-am, cash-out refis, stated-income/stated-asset, and the complete abandonment of underwriting standards did.
I don't think institutions underestimated the risk as much as there was an agency problem -- the risk the lenders were running wasn't a problem for the loan industry.
There was so much money flowing into the MBS that nobody cared about the risk. This was the global saving glut engendered by the rapid expansion of money supply since 1995:
http://research.stlouisfed.org/fred2/series/M3
Honest Abe's unwillingness to learn these facts is becoming quite humorous.
Â¥
2010 Apr 7, 10:54am
Only two things can kill the housing market now: 1) high interest rate (above 7.5%) and 2) job market doesn’t improve. Of course, I don’t see much appreciation in the near future, but I don’t see a big drop in home price either. Therefore, put me in the “NO DOUBLE DIP†camp.
Other things that can kill the housing market:
1) Higher taxes
2) Mandatory Insurance Enrollment
3) Higher Energy costs
4) Reduced government spending
Good luck.
Leigh
2010 Apr 7, 12:01pm
Antoher thing that might kill the market (again) or more accurately in Portland, Oregon is 'prevent recovery' is the realization that homes are still unaffordable! The only homes that seem to be selling are those at the low end,
Leigh
2010 Apr 7, 12:02pm
Sheesh, Abe, what part of 'redlined neighborhood' do you not understand?!?!
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YES, the "only" institutions which were regulated by CRA were large commercial banks, BUT that CREATED the DEMAND that small mortgage companies happily filled. CRA loans were bundled as securities and sold all around the world...but the starting point of the entire food chain was the government forcing commercial banks to make unwise loans.
What happens to prices when suddenly MILLIONS of people can now buy the same product? Thats right - bidding wars -and prices skyrocketed, didn't they? With skyhigh prices many conventional borrowers chose Alt-A and Option Arm loans for the following reasons: (1) to get into the house, and (2) cope with skyhigh payments. Other's with equity borrowed in order to buy commercial properties. The cancer spread and it all started with CRA, kinda like when you toss a pebble into a pond - the ripple effect. By some estimates all this housing activity accounted for more than 40% of ALL jobs in the U.S. since 2001. Its ALL inter-related.Â
CRA had nothing to do with housing bubbles in other countries, however all have similar CAUSES to our own collapse. Central government planing, high inflation, and central banks are the involved...and they too are 100% government related - gee what a coincidence. America also has central government planing (gov't intervention), high inflation and The Fed, which create's money out of thin air then loan's it to the gov't, at interest, putting us all in debt, $1.4 BILLION... PER DAY on INTREST payments alone.
Still not convinced that the Community Reinvestment Act is the cause of our housing and economic crash? Ask yourself this: If ALL loans made in the last 35 years required (1) 20% down, (2) a fixed interest rate, (3) prudent lending requirements and (4) no CRA...would we in America have our current economic meltdown?  Abe.
#housing