patrick.net

Bap33 says

Me avoiding the FHA loan on principle is alot like the green freaky libs that bought Prius .. they made ZERO difference, and only hurt themselves trying to prove a point. I am not as stupid as a lib w/Prius when it comes to proving a point.
Cheers

That is funny, LOL.....plus I hear it causes more harm to our environment to ship batteries all over the nation for hybrids than it would if everyone bought 8 cylinder vehicles.

CRA caused the housing crash, with the help of Congress.

CONGRESS - none of us is as dumb as all of us.

If you can't read...run for Congress !

I am John Galt.

The CRA was an insignificant factor in the housing bubble.

It was the Fed's artificially low interest rates (2002-2005) that fueled the bubble blaze.

With such strong interest rate incentives, the usual market cycle greed was on steroids.

It was a stampede for easy profits. Lenders ignored the risk in their rush to capitalize on the interest rate margins. And buyers were caught up in an exuberant mania that drove housing prices to unsustainable levels.

Like all bubbles, it was the greedy excesses of the individual and collective participants that set the stage for the financial panic and collapse. But it was the Fed's excessively low interest rate policy that fueled the bubble beyond the typical cycle magnitude, making it worse than prior cycles.

um .. negative. Lending standards were reduced, buyers pool was increased, stupid people got access to money, homes artificially inflated, other stupid people pulled out fake-equity, bubble popped, the end. The rates on those loans made no difference to the idiots getting the loan, they were just playing Monopoly anyways. Heck, they made very few payments anyways.

BAP, I'm going to recommend the kindergarden version of Econ 101 for our economically illiterate friends here on Patrick.net, what do you think...too advanced for them? Abe.

This just in from Reuters, [the Venezuelan version of the Community Reinvestment Act, CRA].

Venezuelan President Hugo Chavez said "if banks don't want to extend credit to the poor, and comply with the law (CRA ?), he could nationalize them." Gee, that sounds kinda what like what happened here...and Chavez is a Socialist, isn't he?

The same news release said "funds for insurance should go directly to the people"...(national health care?), and Chavez is a Socialist, isn't he?

And for the kazillionth time, the CRA had no requirements on income or wealth. It was only targeted at geographic locations. If a millionaire wanted to rehab an apartment building and make it into condos in a CRA designated location, the loan would qualify under CRA guidelines.

does anyone know why/how/by what law the lending standards were reduced from 20% down to the crud we seen in 1998 -2007? That may help remove the target from the CRA and place it on the correct entity. Was is due to the actions of ACORN? B.Frank? Can anyone pin point what allowed the lenders to engage in irresponsible lending?

Bap33 says

WHere does Fanny / Freddy and ACORN and B. Frank come into this?

Wait--where do Glen Beck and Rush Limbaugh fit in? And Michael Savage?

I didn't mean it like that. lol. Besides, those guys don't play any role in policey. Mine was a serious question, not a leading question (but I do understand your reason for such a response). I'm sure you have an intelligent answer. Give me it. I was (intentionally) not taking a hard-line conservative role in my question. I would imagine your answer will show that you are not simply thinking politically either. Or, maybe you are. Either way, mine was just a question. Where do they fall into this mess?

tatupu70 says

Bap33 says
Can anyone pin point what allowed the lenders to engage in irresponsible lending?
There is not now, nor has there ever been a law against being stupid. Banks are free to set lending standards as they see fit. As long as they aren’t predatory. Or discriminative. If they want to make a $500K loan to a guy making $10/hr at Mickey D’s, it’s none of the governments business. As long as they still meet capital requirements, of course.

that sure does expose depositers in a way I doubt most realize ... or, did it just expose the FDIC and the tax-payers that saved AIG et al ? I am pretty sure there are rules as to how banks can play with deposites ... so maybe these games were played with some odd type of non-cash-assett?? weird.

elvis says

Tatpu, why do you even bother to reply? Could this be too advanced for your capabilities?

Good one. So, when you have no response, you resort to flaming? A little juvenile, don't you think?

@BAP

I guess my input would be that it's well written and somewhat persuasive. But, it's really a collection of innuendo and 2nd hand quotes. And, as has been posted here ad nauseum, it just doesn't jibe with the facts.

CRA loans actually defaulted at a lower rate than non-CRA loans.

That's a fact. How can you make a case that it caused the bubble and crash, knowing this?

Ok, that makes sense.

Well .... I think I see something now .... CRA was not about "buyers", it was about "locations" ... so, in the crappy locations where nobody really went crazy during the bubble, and where none of the newly-made-qualified buyers wanted to buy, there was not as many defaults tied to the CRA. I can see how that could be a point of view. Do you have any "percentage" breakdowns, instead of "total numbers"?

I think the choice of vocabulary is not by accident.
"lower number of toxic loans wrote vs non-CRA banks". Well ... duh. It appears that in the past, nobody wanted to write a note for the laundry mat / crack house on MLK BVD, so someone wrote a law to force/allow/pesuade more lending in the "red-line" areas.

IS IT WRONG TO THINK: Once this new easier lending was available, who would want to buy in Crap-ville? So, maybe loans got easier and poor buyers avoided Crap-ville too. So, Clinton got serious with the banks and adjusted the CRA to force more help into Crap-ville. But, when the bubble popped, only purchases in Crap-ville, wrote through the specific CRA guidlines (?) would be a CRA note .... right? I see your point now. Do you see mine? It is my opinion that the mentality that agreed with the CRA is what lowered the lending standards and not any market force. If the standards were lowered by Bush, Clinton, Washington, or Ceaser -- I really do'nt care ... it's just that removing of standards that is killing me .. lol

So, please share your opinion as to ACORN and B. Frank?
Thank you.

Please share your opinion on ACORN and B. Frank & Co. with regards to the bubble.
Thank you.

Bap33 says

It is my opinion that the mentality that agreed with the CRA is what lowered the lending standards and not any market force.

Bap--I urge you to read the St. Louis article again. It talks about how the subprime really took off with the deregulation in 1980 and 1982 because it allowed banks to charge higher fees and higher rates based on credit worthiness. With the shackles off, so to speak, they jumped in headfirst. It's not so much that someone or some thing forced them into the subprime market, it's more that they never wanted to get in it before because they couldn't charge enough fees or high enough rates to justify entering that market. After 1980/82 that changed... Does that make sense?

Interesting Comments...

OPED from Wall Street Journal.
http://bx.businessweek.com/apple/view?url=http%3A%2F%2Fc.moreover.com%2Fclick%2Fhere.pl%3Fr2330745813%26f%3D9791

Testimony to Congress see page 3-4.
http://www.house.gov/apps/list/hearing/financialsvcs_dem/pinto_testimony.pdf

"Ninety percent of CRA lending was not classified as high-rate subprime, even though much of it had subprime and other high credit risk characteristics: This is because CRA lenders generally, along with Fannie and Freddie (the GSEs), did not classify CRA and affordable housing loans that had high risk characteristics (i.e. low FICOs, high LTVs, or high debt ratios) as subprime so long as they did not contain other features such as higher fees or higher rates, interest only or negative amortization, or low initial payment features with adjustable interest rates. Under this narrow and misleading definition, only an estimated 10% of CRA lending ended up being classified as subprime. Ironically, the reason that these were not high-rate loans was that the big banks and the GSEs were subsidizing the rates, as recent events have painfully demonstrated;"

"For a glimpse as to possible overall CRA performance consider the following: o Third Federal Savings and Loan’s (Cleveland) has a 35% delinquency rate
on its “Home Today” loans versus a rate of 2% on its non-Home Today portfolio. Home Today is Third Federal’s CRA lending program, which targeted low- and moderate-income home buyers who prior to March 27, 2009 (the date it suspended the program’s innovative and flexible underwriting requirements due to poor performance) would not otherwise qualify for its loan products, generally because of low credit scores and high LTVs. For the reasons noted earlier it did not classify its Home Today loans as subprime lending, however, it noted that the credit profiles of Home Today borrowers “might be described as sub-prime”1;

tatupu70 says

elvis says

Tatpu, why do you even bother to reply? Could this be too advanced for your capabilities?

Good one. So, when you have no response, you resort to flaming? A little juvenile, don’t you think?

When you cant outfact or outthink your opponent throw rocks at his family to get him off topic.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=513131

@nosf41,
Great link, and thank you.

NOSF, watch out. The liberal progressives are going to attack you. They'll say your facts don't count because they have facts that say other-wise. And on top of that they'll say CRA loans had far fewer defaults.

Oh, I get it... LOWERING the standards, accepting poor credit risks and accepting borrowers with little if any cash INCREASES the loan repayment results...hahaha. What, because government shadow statistics says so? RIIIIGHT.

nosf41 says

For banks, simply proving that they were looking for qualified buyers wasn’t enough. Banks now had to show that they had actually made a requisite number of loans to low- and moderate-income (LMI) borrowers. The new regulations also required the use of “innovative or flexible” lending practices to address credit needs of LMI borrowers and neighborhoods…”

OK--let's think about this. Your theory is that the government "pressured" or "forced" the banks to make a "requisite number of loans to low- and moderate-income borrowers", right? So, you're saying that the Banks didn't want to make these loans, right? They were pressured, or forced.

So, wouldn't they make the bare minimum to satisfy the government then? Only the "requisite", and no more? After all, they didn't want to make these loans.

Given this--how could it have caused the mess? Surely, the government didn't require that there be that level of low-and moderate-income loans...

Nevermind that the VAST majority of foreclosures are in non-CRA areas. Which completely blows a hole in that theory anyway.....

Any objective look at the facts cannot come to the conclusion that the CRA had anything to do with the housing bubble and subsequent crash.

Some more interesting stuff...
http://www.forbes.com/2009/10/03/community-reinvestment-act-mortgages-housing-opinions-contributors-peter-schweizer.html

President Obama has been a staunch supporter of the CRA throughout his public life. And his recently announced financial reforms would make the law even more onerous and guarantee an explosion in irresponsible lending. Obama wants to take enforcement of the CRA away from the Federal Reserve, the FDIC and other financial regulators who at least try to weigh bank safety and soundness when enforcing the law, and turn it over to a newly created Consumer Financial Protection Agency (CFPA). This agency's core concerns would not be safety and soundness but, in the words of the Obama administration, "promoting access to financial services," which is really code for forcing banks to lend to those who would not ordinarily qualify. Compliance would no longer be done by bank examiners but by what the administration calls "a group of examiners specially trained and certified in community development" (otherwise called community activists). The administration says, in its literature about the reforms, that "rigorous application of the Community Reinvestment should be a core function of the CFPA."

For good measure, Obama's plan also calls for the CFPA to work closely with the Department of Justice to combat perceived discrimination in lending.

Obama's battle against banks has a long history. In 1994, freshly out of Harvard Law School, he joined two other attorneys in filing a lawsuit against Citibank, the giant mortgage lender. In Selma S. Buycks-Roberson v. Citibank, the plaintiffs claimed that although they had ostensibly been denied home loans "because of delinquent credit obligations and adverse credit," the real culprit was institutional racism. The suit alleged that Citibank had violated the Equal Credit Opportunity Act, the Fair Housing Act and, for good measure, the 13th Constitutional Amendment, which abolished slavery. The bank denied the charge, but after four years of legal wrangling and mounting legal bills, elected to settle. According to court documents, the three plaintiffs received a total of $60,000. Their lawyers received $950,000.

The CRA is not about community development; it is, essentially, affirmative action in lending. Trillions in loans are now to be made not on the basis of whether they can be paid back but to meet CRA goals. This is precisely what we need to get away from. Drinking this potent cocktail would be dangerous to our financial health.

a real kicker from the article...

" According to the National Community Reinvestment Coalition, in the first 20 years of the act, up to 1997, commitments totaled approximately $200 billion. But from 1997 to 2007, commitments exploded to more than $4.2 trillion. "

Are they even worth $4.2Trillion.

BBC is probably the closest you will come to a somewhat, but far from totally, objective source of news. Fox and MSM are equally garbage. Agenda's, half truths, selective reporting, ignoring any dissenting information, or outright lying is what passes for reporting in both worlds. You have to accept both as entertainment only.

Of course for the people who want their news to prop up their preconceived agenda without any of that inconvenient objective thinking stuff both sources represent manna. Just out of curiosity do public (or for that matter private) high schools teach philosophy and objective analysis any more??

Labels anybody?

Just out of curiosity do public (or for that matter private) high schools teach philosophy and objective analysis any more??

Quality private schools, as a matter of course. As for public ed, If the curriculum can't be tested on a scantron, it's not covered. The NCLB mindset is that we need defensive education (enough to run a cash register), not mind-expanding stuff.

I do not blame the CRA as the sole cause for the housing mess.

I do blame the people - that dream up programs - that make buyers out of liars, for most of the mess.

So, it would be fair to say that the politics behind such things as the CRA are where most of "the blame" lands in my view. But the law itself is more of an effect than a cause, I guess.

There's no single cause for the housing mess. It's a combination of a number of things.

1. Alan Greenspan lowering interest rates to near zero levels.
2. Constant stimulus from the US government.
3. The tax code changes which made it more appealing to speculate in real estate.
4. Tax breaks for taking on a mortgage
5. Fannie/Freddie's unlimited access to money to buy up any real estate asset
6. A bunch of dishonest real estate agents, mortgage brokers, bankers, and Wall St. jerk offs willing to rip everyone off.
7. HGTV and every other media outlet acting as the propaganda arm to the NAR.

I could go on and on but blaming the CRA alone isn't rational. I'm sure it's 5% of the story at most. The community reinvestment act was a stupid idea. But that does nothing to explain the mega rise in prices in the richest areas of the country. The fed & the government flooded the market with easy money and created a situation where it was more appealing to buy real estate than anything else through tax breaks and subsidies. The government is able to shift hundreds of billions of dollars into industries that are even much less profitable than real estate or not profitable at all by simply passing legislation (see Ethanol).

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 humming".

In other words, without CRA the housing market would have slowed down all by itself. It was artificially inflated by all the CRA loans. This has nothing to do with race, but it's got everything to do with government intervention and artificial manipulation of the marketplace. As usual, the result is financial disaster and the taxpayer has to pay to clean up the mess - again.

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.

Honest Abe says

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 humming”.

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.

Honest Abe says

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.

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.

E-man says

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.

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,

Sheesh, Abe, what part of 'redlined neighborhood' do you not understand?!?!