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Your logic is flawed. How exactly did low interest rates cause the housing bubble? Low rates in and of themselves don't cause a bubble. They don't encourage mortgage brokers to lie on applications, or appraisals. Low rates don't cause Wall Street investors to underestimate the risk in their repackaged residential loan portfolios.
Low rates are good. They encourage investment by lowering the hurdle rate. But at the end of the day, people still have to make decisions. And a bubble is caused by people being stupid and following the herd mentality. Thinking that prices can never go down. Which, of course, is ridiculous.
I guess I just don't see how low rates "make it possible for people to borrow way too much money" People can borrow too much money regardless of the interest rate--all it takes is someone who is willling to loan it to you. Low rates do allow you to borrow a larger sum for the same monthly payment, but that doesn't make you any more likely to default. It just means that you are paying less interest.
Low rates don't allow people to borrow more money than they reasonably qualify for. Poor understanding of risk and fraud are the only things that cause that.
Probably a debate about the usefulness of the Fed is beyond this post, but I hear what you are saying. What you dislike is basically the Fed's charter--manipulating the money supply to achieve macroeconomic goals... Personally, I think they serve a purpose. Maybe they are wrong sometimes, but nobody is perfect. I'd like to see more regulation of Wall Street before messing with the Fed.
Sorry, I'll try not to beat this to death. I agree completely that lower rates will cause house prices to go up modestly. Both in theory and in practice, I think it bears out. What I disagree with is that low rates have any correlation with a bubble.
I'm not sure that I agree that periods of low rates penalize savers and help debtors though. Generally, high rates occur during times of inflation--and inflation is the real enemy of savers. And the real hero of debtors.
As to variable rate mortgages--again I would argue that low rates have no direct impact on the likelihood of default upon reset. It's just as likely that someone would default on a ARM that resets during a period of high interest rates as during a period of low rates. The default is caused because the orignating loan officer didn't understand the default risk when he gave the loan. Look at all the defaults happening now--and the rates are about as low as they've ever been. They were just bad loans from the second they were originated--no matter what the interest rate environment was...
So, by your logic--Best Buy is responsible for people maxing out their credit cards because they put Plasma TVs on sale? They created an artifical environment that encouraged people to spend beyond their means.
Or are you saying that low rates cause people to lose their sanity? They stopped doing financial paybacks and IRRs because rates were below some arbitrary %?
Speculation cannot be explained by low rates. It's a psychological thing. I'm pretty sure that low rates didn't cause people to buy tulips in Holland in the 1600s or the South Seas Company in Britain in the 1800s.
Low rates probably did drive housing prices up some. It's an easy exercise to see how housing prices have changed over the last 50 years and then overlay it with interest rates over the same period. Certainly there will be an inverse correlation. But--I just don't see how interest rates explain any of the bubble part of the rise.
If interest rates were a major cause--why was the bubble almost exclusively in CA, FL, Las Vegas and Phoenix? Wouldn't low rates affect every city?
Clearly I'm in the minority at this site--I knew that before I posted, but help me out. I've still not seen one argument explaining why low rates cause excess risk taking or asset bubbles.
Here are two charts: interest rates vs. mo./year and housing prices vs. year
The last few years are obviously not the first time in history that the US has enjoyed low interest rates. And it is also not the first time the US has encountered a housing bubble. And like I expected--low interest rates don't correlate with housing bubbles. The data just doesn't back that theory (eg 1970's bubble)
My take--for what it's worth--is that Wall St. greed is almost exclusively to blame for this mess. There was a very good article posted here some time ago explaining credit default swaps and how mortgages were packaged to supposedly lower the risk. Basically, the idiots on Wall St. created an artificial market for these mortgages--they bought as many mortgages as lenders could write without understanding the risk. So, everyone played the game. Realtors, mortgage brokers, ratings agencies, etc. all went along because they knew that AIG would buy the crap. As long as they got paid, noone asked any questions.
And Reniam--you're right. It is widely believed that low rates caused this mess. I just happen to disagree.
I agree that low rates will cause an uptick in demand and subsequently prices for houses. The magnitude of this uptick is not well defined, because demand is made up of many factors--interest rates are only a part of it. But, this increased demand and prices wouldn't be "excessive" as you state it. Or an "artificial valuation" With lower rates, there is a new equilibrium point on the supply and demand curves and prices rise. The true value of the house has risen. Not a bubble. Nothing excessive. Just how free markets work. When/if rates rise back to "normal" levels, housing prices should go back down as well--at least in inflation adjusted terms. Prices go up and down over time--nothing artificial about that.
The foreclosures on fully qualified loans were most likely people getting laid off from their jobs, I imagine. This has nothing to do with low rates. During recessions, people lose jobs and houses go into foreclosure. It's unfortunate, but it's how the world works.
Finally--I see low rates-->bigger loans. I just can't make the connection to bubble.
fyi--good article here. from todays links
I'm laughing that you think I'm part of the REIC (that's the first time I've seen that acronym, but I like it). I thought I was pretty clear that I think the vast majority of the bubble was caused by mortage brokers, realtors, and Wall St. flunkies. Where I disagree with most of the other posters here is that low interest rates were a major cause. And I find it funny that I'm one of the few people here who has posted data to back up their points. Whereas you accuse me of being an insider, and without sense. If you think I am wrong--by all means, show me why. But please have some logical reasoning and/or data to back up your arguments. Otherwise, I agree with you--I'd advise you to move on too.
Patrick-- Intersting example, but if I followed it correctly, I have a couple of comments. If interest rates fall by half, I don't think you'll get twice the loan. It's not a linear relationship. But the real problem in that scenario is you're forgetting about the appraisal. Just because you qualify for twice as much loan, doesn't make the house worth twice as much. And that's one of the key pieces that was missing during the bubble. Appraisals came in for whatever number they had to meet to keep the deal on. And banks didn't care because they didn't understand the risk. So, I'd argue that it wasn't the low rates--it was the banks/Wall St. underestimating risk and realtors and appraisers looking the other way...
Fair enough. How about we agree to disagree. You're right that we are going round and round and saying the same things now. I hope I'm not being a troll--I enjoy a civil discussion and disagreement.
OK--several posters have written since my last post, so I feel I must at least answer them. I think most understand my feelings that Headset is correct, but that in no way does he describe a "bubble". He describes a free market economy. Think of oil prices. One day they are $40, then a few years later they are $80. It's the same oil. But market conditions have changed--namely supply and demand. Same as housing prices change with changes in mortgage rates. Lower rates create more qualified buyers, therefore more demand, therefore higher prices. Not a bubble.
Now--Rogerer's last post was interesting. The end at least. The beginning is the same arguments that I don't agree with. The disparity between prime rate and interest rates could create some unusual conditions. I'll have to think about that one. Oh--and I thought I had made the argument that interest rates are still historically low. Thanks for having my back. You made my point though--the bubble burst during a period of low rates. Because of mortgage defaults--not because of rising mortgage rates.
Justme--you state that the prime rate has little to do with mortgages. But this topic is concerning the Fed and interest rates--you realize that the Fed doesn't set mortgage rates, right? The Greenspan quote is interesting. I will do some research to see the context in which it was made. Here's one for you. From Wiki-- "Robert Shiller does compare interest rates and overall U.S. home prices over the period 1890â€“2004 and concludes that interest rates do not explain historic trends for the country." Another one "Some believe that mortgage standards became lax because of a moral hazard, where each link in the mortgage chain collected profits while believing it was passing on risk. Mortgage denial rates for conventional home purchase loans, reported under the Home Mortgage Disclosure Act, have dropped noticeably, from 29 percent in 1998, to 14 percent in 2002 and 2003."
I'll try to state my contention a different way. Imagine that you are a broker/Wall St. investor/bank or whoever is making the loans. Even if I gave you a supply of free money--ie 0% interest rate--would you loan it to someone that you knew wasn't going to pay you back? Of course not. So the only way these guys would make these loans is if they didn't understand the risk involved. Or if they were only concerned with next quarters financials and not 2-3 years down the road when the shit hit the fan...
I apologize if I'm not engaging in straight talk. Sometimes I try to be overclever. I think that interest rates had a very minor effect on the bubble. I think poor understanding of risk had a HUGE, major effect. Like I said in my last post--take a look at this bubble. It popped, not because of rising interest rates, but because of defaults/foreclosures. Because there were so many ridiculously crappy loans written.
I will agree that low rates create an environment of rising prices which would probably make a bubble slightly easier to form. But, look again at the housing price history graph--there was a bubble in the late seventies while mortgage rates were high. So I don't think it's a necessary condition.
And your last statement about 0% interest is an interesting one. That gets to the crux of what I'm saying. Housing prices would certainly increase, but they should increase. Just because prices increase, it doesn't mean that's it's a bubble situation. A bubble implies that the free market isn't working and people are acting irrationally.
Hopefully that makes sense and a cake is a cake again.
Others had said it, but it's useful to remember that all real estate markets are local. A "bottom" in Akron, OH will occur at a different time than in Stockon, CA. It seems that this board is dominated by northern CA people, which isn't unusual because that's one of the places where the bubble hit hard. The best way, IMO, to know if a bottom is near in the area you are looking at is to look at the historical ave. price or historical price/rent ratio. Those charts have been posted on here several times on different forums... Keeping in mind that after a bubble and recession, you usually end up below the mean.
Geez. I'm not a blinded liberal, but I think you are being overly harsh on our commander in chief. We're grading him on his accomplishments after less than a 1 year in office? I think it's premature, but let's go over your list anyway.
Closing Guantanamo--He has ordered it to be closed, but unfortunately Congress is standing in his way. He is the President, but in the US we have this nasty little separation of powers thing outlined in the Constitution.
Iraq-He is steadily drawing down our troops there. Obviously you can't just pack up and leave a country that you have destroyed. I think it was Colin Powell said something like--you break it, you own it. And that came to pass.
Afghanistan--That is where I think he is making the least progress. Sounds like it is being discussed at the highest levels right now. Personally, I'd rather they take their time and get it right...
Middle East--Clearly he is focusing a lot of time and effort on this dilemma. Leaning on Israel to stop their settlements, developing a new framework for talks to being, etc. Not sure how one can think nothing is happening there.
Budget-- Again, there is that nasty Congress. Spending is determined by our reps and senators, not our President. They have a habit of putting their pet projects in the budget even when the President doesn't want them. ie see the military budget...
I just think it's ridiculous to criticize Obama for not cleaning up the mess that it took Bush 8 years to create in 6 months. If he was a dictator or King it might be easier, but the way our government is set up now, it's next to impossible. Special interests and lobbyists run the show and not even the President can change that.
I'm laughing--so what you're saying is that Obama hasn't achieved all of his promises in his first six months?? My word!! I agree--he must be a total failure. I mean, how hard is it to broker peace in the Middle East. It's not like they have been fighting for hundreds of years or anything. Or balance the budget during the worst recession since the Great Depression. That should be child's play. Or rebuild Iraq and establish a strong, free market government in the Middle East. All of these should problems should have been solved already... You're completely correct.
Of course he said he made promises during the campaign. And he is working towards making the promises a reality. But, these are huge, complex problems. And they can't be solved in 6 months...
Any chance you could move somewhere outside of the bay area? That is one of the most expensive places in the country to live. I can assure you that it doesn't take $300K for a starter home in most of the US... I think most of the people there have to have 2 incomes to afford their house.
That is just completely incorrect. The CRA only applied to very specific zip codes. And if you look at foreclosure rates in those zip codes, they mirror what would be expected during a recession.
Yes, lending practices were relaxed and, yes that directly caused the bubble. But, it happened completely independently of the CRA. It was because the crazy MBAs on Wall St. didn't understand the risk of mortgage debt. And the ratings companies called all the crappy Alt-A, Option ARM, liar loans, etc. as AAA investment grade securities when they were bundled together.
We've hand government intervention in housing for many, many years. Fannie Mae and Freddie Mac have been around since the late 60s and the mortgage interest deduction has been available forever. This is nothing new. You may not agree with the goals of government intervention, but it certainly didn't cause the bubble and subsequent crash
Great men donâ€™t have â€œDetractorsâ€
Really--Abe Lincoln had many, many detractors. George Washington had detractors. Everyone, no matter how great, has detractors.
You're beginning to sound like a crotchety old man. I'm expecting to hear how you had to walk to school in the bitter cold, with 2 ft. snow, uphill (both ways).
We're in a recession now. Things are bad. It's happened before, it will happen again. The world is not ending.... Relax and take a vacation somewhere warm and sunny with drinks that come with umbrellas. It won't seem so bad then.
Could you explain how you came to the conclusion that
(1) Its pretty clear the feeding frenzy was started by CRA and the govâ€™t required lax lending requirements. Banks that had standards exceeding that of Regulators were considered to have â€œunfair lending practices.â€
I've read through the same articles and come to the exact opposite conclusion. Help me out. How does a loan in one of the CRA approved zip codes cause a bank to make a reckless loan in an affluent area? Regulators would only complain if they were not approving loans in the CRA approved zips--they wouldn't have anything to say about loans in non-CRA zips. And non-CRA zips is where the bubble and crash occured.
(2) CRA is a great concept BUT is unworkable in reality. It would also be great to let everyone fly around the country for almost nothingâ€¦but not so great if regulators forced the airlines to gut their safety standards. Do you see the similarity?
No. I don't. I assume you're implying that the CRA forced banks to give away money like an airline letting everyone fly for free. But that assumption is false. So the anala]ogy is poor.
(3) Loans needing down payments, strict lending requirements and the like prevent run-a-way price increases (a bubble).
In other words CRA is the cause, devastation is the effect.
You're right that down payments, strict lending requirements will prevent run-a-way price increases... but that has nothing to do with the CRA.
You still haven't made the connection between lowered lending standards and CRA. You say:
Mortgage companies did too, all over the place, since they were not regulated to stay in any particular zip code.
How is that statement connected to CRA?? Mortgage companies DID lower their standards, but it had nothing to do with CRA. It had everything to do with the fact that there was a huge market for bundled mortgages. There was an insatiable appetite for them on Wall St., and as long as they could easily resell the mortgages for a large profit, the brokers were only too happy to write the crappy loans.
Finally--show me where the CRA states that banks must lower their lending standards...
Leader of the free world does not go around apologizing to everyone and does not bow to a foreign country leader (Saudi king).
With all the problems in the US and abroad, you're concerned with a nod of the head? Are you kidding me?
Iâ€™m going to ask you something and answer honestly so I can respect you as either a real patriot or a marginalize you as another one way Lefty.
When you put it that way, how can I refuse? Because you know that I go to bed worrying whether you think I am a "one way lefty"... And I fear that our definitions of patriot are somewhat different, so I probably wouldn't consider it a compliment if you called me such.
But, in any event, I find most of what W. did to be somewhat comical. So, my reaction was a combination of embarrassment and humor--not because he was engaging in a Saudi custom, but more because often I couldnt' tell the difference between the real Bush and a Will Farrell impersonation...
I agree with much of your post. It's unfortunate that the country has become so divided and closed minded that it's nearly impossible to have a civil discussion about the issues.
Why does it bother you when the world swoons though? I would much rather the world swoon at our President than throw shoes at him. Was it bad for the US when Kennedy was President?
And fyi--I think what Paine meant was more along the lines of the Patriot Act...
I love when someone posts that the "could" do this, or "could" post the proof, but they choose not to. In my experience, if you have the goods then you'll put them out there for everyone to see. Of course you knew all along because you're much smarter than everyone else...
I agree that the current health care bill is not what I wanted. But, the reason why is that the entrenched insurance execs, pharma execs, and the congressmen that they have on their payroll have so throroughly distorted the health care debate that we're left with a damaged bill. Sarah Palin's death panels, the commercials saying that you'll lose your Medicare, etc. have scared seniors enough to crash the town hall meetings.
It's really unfortunate because we had an opportunity to join the rest of the civilized world...
If industry insiders are saying that the market is about to collapse, then it must be a good time to buy...
Peter P says
I do not understand the animosity toward Rush Limbaugh. He has many good ideas and he is successful enough to have a Gulfstream G550
Unfortunately, it has been proven time and again that it does not take intelligence or morality to become wealthy. Jon Gosselin can probably afford a Gulfstream, certainly Howard Stern can. Rush made his money by spouting half-truths, bogus hypotheticals, and outright lies. All of it designed to scare.
And, don't worry. The world is not going to end. US is not going the way of the Roman Empire... The country has been in far worse predicaments in the past and has come out fine. Remember the public debt as a % of GDP was actually higher during the end of Reagan's term than it is now. Even after the worst recession since the Great Depression. And it was much, much, much higher after WWII. The country will have to make some hard choices and tighten the belt, but it will. Clinton showed how much can be saved in a short time.
I was really surprised that a canny politician like Obama didnâ€™t listen to people like Volker and take the pain as soon as he got in office so he could dump all the blame on Bush. Punting the problems down the road means things are very likely to really blow up in his face just in time for the next presidential election. When are the hard choices and the belt tightening due to start? There havenâ€™t been any so far in this entire crises. Just borrowing more and more money. Donâ€™t worry, be happy.
You can't tighten the belt during a recession. If we learned anything from the Great Depression, I would hope that is it. First you stimulate the economy, then you reduce spending. That's Econ 101.
You had it right earlier. It's no use arguing with these nutjobs. If they want to believe that the CRA is the cause of all of their ills, so be it. Obviously critical thinking is not among their strengths, so it's no use wasting time and energy trying to explain the fallacies of their logic.
I think I'll invest in Alcoa--tinfoil sales seem like they are poised to increase...
Honest Abe says
I couldnâ€™t help but notice an absence of comment about the government game plan of helping the downtrodden, in exchange for votes. Or what a free market is and how it (always) wroks. Or the fact that this once great nation is on the verge of collapse, not because of conservative ideals and principals, but because of failed liberal experiments for the past 40 + years.
Iâ€™m not going to throw stones back at you, however I am going to point out failed policies which got us to this sad state of affairs. May I suggest you at least log onto mwhodges.com and read unbiased information about government policies and the negative effect its having on all of us, our children and grandchildern. Seems kinda unfair, that children not even born will have to carry a financial burden created by our generation. Iâ€™d call that moral bankrupcy, what would you call it? Abe
You haven't really discussed anything. You've posted a bunch of your opinoins and passed them off as if they are fact. Which they are not. The US is not on the verge of collapse. The CRA did not cuase the housing bubble. Liberal experiments did not cause the problems we are now experiencing. If you'd like to explain WHY you think the way you do, then I'll be happy to refute your theories one by one. I have tried to explain why it is obvious that the CRA didn't cause the housing crash in previous posts, but you are unwilling to listen to any point of view other than your own. So, I'm not sure how else to convince you... If/when you'd like to rationally discuss it, let me know.
So with a perfect 100% failure rate and a record that proves that each and every â€œserviceâ€ forced on Americans by our over-reaching government turns into a disaster, how can any informed American trust our government to run or even set policies for Americas health care needs???
Wow--so our military is a failure then?
And your opinion on whether programs are failures are just that. Opinions.
TAPUPU, one simple comparison should convince even you that the liberal policies of the past 40 + years have been a series of costly failed experiements. Answer this: Was America a better place (more freedom, sound money, fewer taxes, less regulation, less inflation, low house prices, fewer stupid laws, etc) in the 1950â€™s or now - in our current liberal nightmare we find ourselves in? Honest Abe.
OK--so let's go through your assumptions and try to see how true they are. I know you prefer not to let the truth interfere with your posts...
Looking at the chart, certainly appears that taxes were much higher back in the 50's, doesn't it?
Not sure how you quantify more "freedom" or "fewer stupid laws". I'll agree that the Patriot Act has reduced our freedom some, but the strides made in gaining equality for everyone has probably more than offset for it. Stupid laws exist in every decade. House prices are higher now--mostly due to inflation, but partly due to the housing bubble. That's a temporary situation, however, as everyone is learning these days. Finally, the last 2.5 decades (since Reagan) have been a non-ending orgy of de-regulation. So, for you to suggest that we are MORE regulated than in the 50's is pure folly.
Just our of curiousity, what are these policies of the past 40+ years that have been so costly?? And please don't mention the CRA. Hopefully, you've realized that it had very little to zero effect on the housing bubble by now.
that is good information you share, but in my opinion the â€œideaâ€ to grant access to homeloanership to people that do not make the cut based on their own income and ability to repay the note â€” all on there own â€” was a very bad idea, and allowed this mess to get going. We both have said â€œperfect stormâ€ in the past, and it hold true still.
I think there is a misconception out there about what the CRA actually was(and is). Here is what the Fed says:
"The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995, and was most recently amended in August 2005.
Evaluation of CRA Performance
The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities.
Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.
CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC)."
It specifically mentions on multiple occasions that it is not designed to encourage risky loans. "CRA activities should be undertaken in a safe and sound manner" If banks chose to make crappy decisions, it was their own doing. And now they are just trying to pass the blame for their ineptness.
WOuld you agree that this is another case of â€œgreat intentionsâ€ gone bad? And in that doc the verbage suggests that banking is â€œlocalâ€, IE - local communities â€” that is not realistic. Also, why were banks taken to court, or threatened with action by folks like Barry and B.Frank and ACORN?? Was it not to force (bad) loans? If you say no, Iâ€™ll be forced to go gather those dang links, so please just agree. lol
No, I wouldn't agree. Please post some links. I'm anxiously awaiting them!
The reports I've seen suggest that CRA had very little effect on anything, but any affect it did have was likely positive.
Here is the proof of Barry and Barney and ACRON forcing banks to do bad loans:
search #1: â€œfannie mae and freddie mac barney frankâ€
result #1: http://www.google.com/search?hl=en&rls=com.microsoft:en-us:IE-SearchBox&rlz=1I7ADBF_en&q=fannie+mae+and+freddie+mac+barney+frank&revid=2032497490&ei=d23fSqKqD5LqsQPc6a3mDw&sa=X&oi=revisions_inline&resnum=0&ct=broad-revision&cd=1&ved=0CCAQ1QIoAA
search #2: â€œacorn sues bankâ€
result #2: http://www.google.com/search?q=acorn+sues+bank&rls=com.microsoft:en-us:IE-SearchBox&ie=UTF-8&oe=UTF-8&sourceid=ie7&rlz=1I7ADBF_en
I did it that way to avoid the â€œyou pick and chooseâ€ arguement that follows. Happy reading.
A google search doesn't really prove anything. If you want to prove something, please post a link to a reputable article showing instances of banks being forced to make bad loans against their will.
By your logic, the following is proof that the world will end in 2012:
Or that George W. Bush is actually a monkey:
Or that Israel caused 9/11:
Obviously, none of that is true, but you can get a google or yahoo search to tell you whatever you want it to. There are enough nutjobs out there with blogs...
And pajamas TV doesn't count as a reputable source..
It means that the house recently sold for $74K. They get the info from the county sales records...
the search option was so you could choose any one of many examples and avoid doing EXACTLY what you did with the pajama story.. see how that worked? Now go back and read a few of the hits on each search.
So, what you're saying is that you couldn't find any reputable links for me, so instead you posted a link to a google search with 10 crappy links. In your mind, if there are 10 wackos out there writing it, then it must be true?
How about something without the word pajamas in the title? We can start there. I'm really not that picky--just something from an actual news organization and not a blogger. I'll give you an example here:
I'll encourage you to read this. It's very interesting.
The Community Reinvestment Act (CRA) is a US Federal law designed to encourage commercial banks and savings associations to meet the needs of low income borrowers. In other words bank were, in essence, forced to make loans to non-qualified borrowers. The benevolent US government pushed the risk of doing so onto unsuspecting taxpayers (Thanks Uncle Sam). Very few positive things in life are derived through force or forcing risk onto others.
Ummmm, not exactly. I'll post it again to refresh your memory.
â€œThe Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995, and was most recently amended in August 2005.
Evaluation of CRA Performance
The CRA requires that each depository institutionâ€™s record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institutionâ€™s application for deposit facilities.
Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institutionâ€™s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institutionâ€™s CRA activities should be undertaken in a safe and sound manner.
CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).â€
Nice try though--I like the theory that it's the smart people that are ruining the country. I know I'd feel better with Homer Simpson in charge. Oh wait, we just voted him out of office, didn't we?
Yes, Homer is gone but so many more need replacing. RE-ELECT NO ONE
I don't necessarily disagree with that one... If only I thought there was anyone better waiting in the wings...
Very good. I would consider those reputable sources. I think that they are wrong, but none of the links have sleepwear in their name.
Here's some others for you to read:
With an interesting section I copied below:
"Putting together these facts provides a striking result: Only 6 percent 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"
"...Putting together these facts provides a striking result: Only 6 percent 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"
"...When we conducted this analysis, we found essentially no difference in the performance of subprime loans in Zip codes that were just below or just above the income threshold for the CRA.9 The results of this analysis are not consistent with the contention that the CRA is at the root of the subprime crisis, because delinquency rates for subprime and alt-A loans in neighborhoods just below the CRA-eligibility threshold are very similar to delinquency rates on loans just above the threshold, hence not the subject of CRA lending"
"The final analysis we undertook to investigate the likely effects of the CRA on the subprime crisis was to examine foreclosure activity across neighborhoods grouped by income. We found that most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA."
Or another one
"University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations"
"Itâ€™s telling that, amid all the recent recriminations, even lenders have not fingered CRA. Thatâ€™s because CRA didnâ€™t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA â€” or any federal regulator. Law didnâ€™t make them lend. The profit motive did. And that is not political correctness. It is correctness"
why would you counter with a speech (opinion) and a blog? You specified reputable sources. I gave you reputable sources. Use one in-kind with mine or conceede. Thank you
Beacause those sources had FACTS. A study was done disproving your hypothesis that the CRA had an effect on the housing crisis. Not sure if you noticed, but your sources were opinions. Opinions without facts. No studies. No data.