Thursday, September 18, 2008
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CRA to Blame for Mortgage Mess?
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Posted by:
Matt Lewis at
8:38 AM
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This morning on "Morning Joe," Larry Kudlow was asked about some specific reforms that could help the economy.
He noted that the federal government helped create this financial crisis in the mid-nineties by passing the Community Reinvestment Act. According to Wikipedia:
"The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.
The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. [1]"
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions.
... The Clinton Administration's regulatory revisions [1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. [2] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. [3] [4]
In short, the federal government began forcing banks to make subprime loans to people who couldn't afford them.
Update: This is from April 15:
KUDLOW: Would you consider, by the way, rolling back the Community Reinvestment Act, which a lot of people say triggered this, mandating banks and other lenders to make substandard loans in the first place, and the creator of the subprime mortgages back in the middle '90s? Is it time to take a look at the Community Reinvestment Act?
Sen. McCAIN: Absolutely, Larry. There were people who predicted that the Community Reinvestment Act might lead to reckless and unsound lending practices just to sort of fill a--you know, a amount of--I don't like to use the word "quota," but certain percentages of a--of a home--of the bank's lending practices. Yes, it has to be re-examined, it has to be judged by its
effect, and we need to find out how this particular system affected the overall insolvency of the subprime lending issue. And I think it--I'm not saying it needs to be repealed, but it certainly needs to be re-examined and what its effects have been. And we'll be able to figure that out.
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Yes of course liberalizing borrowing requirements is behind this mess. But it is not first time poor buyers who were qualified for the their first home loan who are behind this mess.
It is from a policy of greed of selling mortgages to folks with no money down or beyond the value of the home being sold and not verifying salaries or income or debt. And then reselling that worthless paper to Fannie and Freddie and AIG and others. When the market did a turn down and defaults and foreclosures started to rise--well those holding the paper were in big trouble.
And when John McCain raised the alarm, then Dems crying affordable loans refused to act. The same Dems who were getting stroked by Fannie May and Freddie Mac. http://frum.nationalreview.com/post/?q=NWFiNDk4OTYwODc2MmI 2ZTU0MjQxYjhhYzEzN2ZmMjQ=
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Just take a look at Obama's home state. The Democrats are in total control here. Especially in the Cook county - Chicago Area. The highest retail taxes in the country and we are on the brink of bankrupty.
Here's what happened app. 5 years ago to our housing market. On the southside of Chicago houses were being boarded up everywhere. Jesse Jackson was having press conferences screaming about the lenders taking advantage of folks with balloon loans.
Our governor whom I never defend but, being fair he tried to do the right thing. He passed a law that would require education classes for new home buyers. These classes would teach about all of the different types of loans available and what loan would be better suited for you. And how to confirm if you would be able to make the payments.
These required classes were implemented by zip code. The ones with the overwhelming number of foreclosures.
Well the market dryed up on the southsouth. All of Jesse's buddies and Jesse who were making millions screwing their own people where now going out of business.
So Jesse called another press conference blasting his buddy, the democrat governor as being racist for this mandatory training. The gov. caved and now here we are 5 years later. All of Jesse buddies and Jesse have made their millions. And the democrat talking points is blame Bush.
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The Feds did mandate that loans should be accessible marginally qualified applicants. They did require that banks make and keep a certain percentage of these loans or they would investigate the bank for discriminatory lending.
The Feds did not lay the grounds for, or require the no-documentation loans. That was done by FNA and Freddie Mac independent of the feds and contrary to what right thinking Republicans thought was correct. They tried to impose oversight regulations to stop these loans from happening but the Democrats in Congress blocked those actions. FNMA/MAC invested heavily in Democratic candidates campaigns all the way to right now with Obama's current campaign. The Dems (and we can assume Obama too) protected FNM/MAC from federal oversight laws that would have curtailed or prevented this problem.
That said the entire mortgage industry AND the real estate industry boiled this situation to the maximum. It is a commission driven industry, low on qualification, easy to license and extremely low on ethics. I sincerely hope the legal ramifications of this debacle goes deep into this scurrilous industry. |
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If, as a conservative, you disagreed with CRA and the practice subprime lending then you effectively were being mean and nasty to the white trash and the negroes who just wanted to own homes they couldn't afford in the first place. The Feds gave the lenders the tools and perpetuated the abuse and didn't give the borrowers the same standards by which to maintain the mortgage. They relaxed the standards to include no savings or credit history, no verification of income relative to the size of the mortgage amount. And ACORN is still offering these people 100% financing with the same standards. More foreclosure, anyone?
And for my thoughts I am a heartless, republican shill who looks down on the disadvantaged. NOT. |
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As for AIG, as I understood it...the gubmint bailed them out because they have assets and were unable to liquidate fast enough for the rate of default. SO the bail out is a loan and Uncle will be making some dough. Lehman Bros...they had no assets to liquidate, therefore the bad decisions cost them all and down they went. We all own a nice chunk of that thanks to the taxes we pay...wonder of we'll get a break in 09...I won't hold my breath. |
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