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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.
“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).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?
Tatupu - I'd like to say my description of CRA is 'close enough' for Government work - haha.
And right on - you'd LIKE to think smart people are running the country...but as you say, its a "theory". Yes, Homer is gone but so many more need replacing. RE-ELECT NO ONE. :)
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...
Just for you tatupu:
http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan
http://www.businessandmedia.org/articles/2008/20080924145932.aspx
http://online.wsj.com/article/SB122212948811465427.html
we pause for some excellant quotes contained in and properly accredited in these links:
"An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income. Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations. "
"In analyzing the mortgage crisis, economist Walter E. Williams has written: “Starting with the Community Reinvestment Act of 1977, that was given more teeth during the Clinton administration, Congress started intimidating banks and other financial institutions into making loans, so-called sub-prime loans, to high-risk homebuyers and businesses."
http://online.wsj.com/article/SB10001424052748704107204574475110152189446.html
http://www.cnsnews.com/news/article/49791
http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?sec=&spon=&pagewanted=1
ok, last one: "The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued." -- Boston Globe
http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/
Welp, happy spinning. lol
Bap--
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:
http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm
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
http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html
"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"
"It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’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 — or any federal regulator. Law didn’t make them lend. The profit motive did. And that is not political correctness. It is correctness"
Y'all are still in here grasping at straws?
Spin me a story where some banker is being audited. Supposedly it "empowered regulators to punish bankers" and the logical extension of that there must have been some punishing. A gun to the head.
The regulator comes in and gives him a written report:
YOU NEED TO GIVE OUT 1,000 SHAKY LOANS TO SUBPRIME BUYERS OR YOU WILL BE SHUT DOWN
The banker is thoroughly cowed by this near-miss with the vicious regulator and meekly complies.
If CRA were the key element y'all think it is, then there will be plenty of stories like that and banking being what it is there will be plentiful paper trails and official letters. There'd have to be a metric ton of cowing going on, to force all these righteous bankers to abandon decades of sensible risk management practices and drive straight off the cliff. Given how video cameras are everywhere in banks there'd probably be some footage somewhere too of these meetings with the regulators they could publish, where the bankers get browbeat over their CRA non-compliance.
I can pass a law the Bap33 Emperor Act. If nobody takes it seriously and Bap33 is not treated as the emperor complete with all the cowtowing and executions of the unrighteous and such, well then it's not been an act with any teeth has it.
tatupu,
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.
Vincente,
In my post above the answer to your post sits unread. Klinton added teeth.
@BAP
Finally, some articles worth reading...yes, Bush Sr. wanted to reverse the S&L Crisis of 89 and yes, Clinton wanted to target minorities with home loans.
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.
I know a lot of you “intellectuals†out there are just going nuts. So be it, if so you are part of the problem here in America. You may be part of the “entitlement†crowd, or those who say “give-me, give-me, give-me,†those who want something for nothing. Those who think its okay to FORCE others to act in a way that pleases YOU. Those are the “takers†of the world. The rights haters and freedom destroyers, the big government proponents. Those out there that think government safety nets should not be limited, but in UN-LIMITED.The liberal thinkers who want to constantly experiment with the economy, with no money of their own at risk - but putting others at financial risk. NO THANK YOU.
Whats far better than “fuzzy thinking†is freedom and liberty for all. Things that drive liberals crazy; like facts, the rule of law, The Constitution, etc. Why is it I never hear a liberal quote the Constitution????
We do need government, but that government needs to be limited in size and scope. Government is the institutionalization of force…that’s one main reason government needs to be limited…not to run every one’s life.
Thank you, thank you very much.
I am continually amazed at how stupid people are often so proud of it.
@Elvis.
Conservatives mainly cite the consitution when they think your right to bear arms are being encroached upon. Liberals also cite the constitution, just when they want gay marriage. Lets move past that, you say you want smaller government, free enterprise and no public services in the form of Socialism right? Explain to me what a conservative government would look like so that i can better understand your rant?....Explain what a conservative goverment would look like with no Socialism or point me to a link?
tatupu,
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.
In your mind, if there are 10 wackos out there writing it, then it must be true?
...... lmao ...... irony is great humor. If you find all facts that support my view to be opinions, and all opinions that support your view to be facts, then I guess we need to dial back and agree on what the definition of "is" is. lol
In closing, you refused to pick three sources for me to use because you would then have to use them and knew that would end your debate. See how that works?
lmao …… irony is great humor. If you find all facts that support my view to be opinions, and all opinions that support your view to be facts, then I guess we need to dial back and agree on what the definition of “is†is. lol
OK--I'm tiring of this inane argument. Generally, facts have numbers with them. Like--
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,
or
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
whereas opinions don't. such as:
Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this “subprime†lending by authorizing ever more “flexible†criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.
or:
Starting with the Community Reinvestment Act of 1977, that was given more teeth during the Clinton administration, Congress started intimidating banks and other financial institutions into making loans, so-called sub-prime loans, to high-risk homebuyers and businesses
See the difference?
In your very post is an obvious pile of crap ... higher priced loans .... and percentages of the whole ... is not the point made by ANYTHING I have shared ... the point made (to any fair minded reader) is that the liberal pukes in gov forced social engineering tactics onto banks and THAT started the insane bubble. And B Frank, Barry, and ACORN were accomplices.
And the last quote you put up, from Walter Williams, you dispute? Really? That's absurd.
But, the FACT that you REFUSE to pick some sources for us BOTH to use shows that you have BIAS. I have openly been willing to use credable sources that you pick ... and you refuse. Explain that please. Wouldn't that help find common ground and proof of FACT vs OPINION?
If you want to read numbers, graphs, and have words like "a study says", "an expert said", or some other crap like that, I'm sure I can find that too. But, instead, howabout you simply pick the top three sources that you feel are credable, and deal in 100% un-biased facts with a complete lack of opinions. Ready? Go!! I'm waiting.
BY the way ... do you get tired from skipping all around and avoiding any question answering? Wait, skip that, it was a question. lmao. Please do not start all over at this point again:
tatupu70 says
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.
an opinion about opinions ... now that IS funny. lmao.
Ok, what is the CRA? I didn't see any explanation for this abbreviation.
In my post above the answer to your post sits unread. Klinton added teeth.
Your linked articles PROVE nothing of the sort. A lot of supposition and "obviously" but no proof of teeth. Show me one bank that got punished by it's regulators under CRA for not giving out enough risky loans. No teeth marks are evident.
In your very post is an obvious pile of crap … higher priced loans …. and percentages of the whole … is not the point made by ANYTHING I have shared … the point made (to any fair minded reader) is that the liberal pukes in gov forced social engineering tactics onto banks and THAT started the insane bubble. And B Frank, Barry, and ACORN were accomplices.
And the last quote you put up, from Walter Williams, you dispute? Really? That’s absurd
Yes, I dispute that quote as well as your premise above. It's ridiculous. If I'm following your theory, what you're saying is that the "pukes" pressured a bank in Compton to make a loan to an underprivilaged applicant. OK, I don't really think this happened, but we'll assume for the sake of argument that it did. How again did that have any relevance to Countrywide making a loan to someone in Granite Bay, CA? The guys up at Countrywide said--Oh, crap, banks in Compton are making bad loans! We need to get in on this!! Let's start doing it too!!!
And, I haven't answered your question about 3 sources because I don't understand why you'd want to limit your research? I can easily pick three that would back me, but why? I just wanted to eliminate the use of crazy bloggers that have an obvious political bent to them.
Thanks Elvis, but my private business doesn't do anything we are not FORCED to do. If some government agency sent me a letter saying "we'd really like you to do X & Y" but never came down and did anything about it I'd toss the paper in the trash. I find it hard to believe y'all actually buy that the MORTGAGE LENDERS who are tossing out loans right & left and make tons of commission, give a rat's behind about some meaningless toothless thing like CRA. You think the folks at CountryWide were quaking in their boots they might get shutdown by CRA any second? Heck no, if it did anything at all it gave them the green light to do more of what they were already doing. The very idea that Angelo Mozilo was being beat behind the woodshed and FORCED to cut his risk management and FORCED to make more money in the short term is ludicrous. You guys have the cart before the horse.
Elvis--
Further, your theory doesn't bear out with the facts. Foreclosure rates in Compton are in line with what would be expected during a downturn in the economy, whereas foreclosure rates in Granite Bay and other non-CRA areas were and are much, much higher than would be expected. If Countrywide just bought the loans from CRA areas, then all the foreclosures would be in CRA areas. Which they aren't.
The CRA "regulators", bullying bankers around and creating this mess is not just ludicrous it's laughable. FedGov may not be YOUR friend or mine, but it's BFF with the BANKSTERS Elvis. Thanks for confirming you do have a reading comprehension issue I am in engaged in a partnership in a small business. Evidence demonstrates FedGov does whatever the bankers want, and any pretense at regulation is just that.
Government has no business being in the housing business, or in the lending business, nor should the government enable the Fed to engage in price fixing and interest rate manipulation. The result is the catastrophe in which the country is experiencing. Defend the putrid pile of slop all you want. Go ahead, make my day
That's a different argument altogether. You're wrong about that too, but I think we'd need to start a new post to have that discussion. This post is just showing that the CRA had very little to no affect on the housing bubble.
I'm coming late to this so excuse me if its been mentioned already but it seems to me that a simple way to begin to evaluate the impact of the CRA is to examine the timeline and compare it to the mortgage defaults.
The CRA was enacted in 1995 and its regulations broke down home-loan data by neighborhood, income, and race; it encouraged community groups to complain to banks and regulators by allowing community groups that marketed loans to collect a brokers fee. Fannie Mae was allowed to receive affordable housing credit for buying subprime securities. Then in Sept 1999 Fannie Mae eased the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans, and in November the Gramm-Leach-Bliley Act "Financial Services Modernization Act" repealed Glass-Steagall Act which deregulated banking, insurance and securities. This deregualtion of the banks allowed them to split up and package & repackage the loans and to maintain balances based on these poorly made loans of a far far thinner margin than what had been generally percieved to be safe. It was the regulation that had up to that point required banks to maintain a balance of reserves in case their loans went bad and required higher percentages of down payments.
I don't believe there was a huge default issue from the years 1996 to 2002 or so, and as the loans didn't begin to default en masse really until a couple of years ago its the loans issued from 2000 or so on - under the rules set out by the Gramm-Leach-Bliley Act - in conjunction with the lack of back-up in the banks that would seem to be the base of the problem, not the early loans made under the CRA rules.
And this next part is not going to be seen as entirely constructive, but anyway - I wonder when will people like you stop trying to blame the poor and the minorities for all the problems in our culture. This housing bubble has been shown over and over again on these forum pages and in book after book after article after article to have been caused by deregualtion of the banks and simple greed on the part of the banks and insurance companies. Stop wasting our time and stop trying to justify your racism and ignorance with false and misleading facts.
Vincente and tatupu,
This link was in my link post and if you would be so kind as to read it I think you will find what you say I have not shared. If you read it close it even says "proving cause and effect is hard to do" concerning CRA. Cmon guys, read the link so I don't have to fill the blog with loads of crap that you will ignore anyways. lol
@tatupu,
Walter Williams .... you really just posted that he is wrong. Do you know who he is?
attention race-baitors ... Mr. Williams is a person of color. Irony rocks!!
attention race-baitors … Mr. Williams is a person of color. Irony rocks!!
Your point is?
This link was in my link post and if you would be so kind as to read it I think you will find what you say I have not shared. If you read it close it even says “proving cause and effect is hard to do†concerning CRA. Cmon guys, read the link so I don’t have to fill the blog with loads of crap that you will ignore anyways. lol
So, what you're saying is that your theory doesn't hold water then? Because I reread your links and the majority deal with Barney Frank, Fannie Mae and Freddie Mac. I thought we were discussing the CRA? And none of the links contain any theories as to why the CRA would cause a non-regulated mortgage broker to make a bad loan to an applicant in a non-CRA area. And these loans are the ones that caused the housing bubble.
Further, your theory doesn’t bear out with the facts. Foreclosure rates in Compton are in line with what would be expected during a downturn in the economy, whereas foreclosure rates in Granite Bay and other non-CRA areas
And who runs Compton ? Maxine Waters.. thats who...
Washington, DC - October 20, 2009 - (RealEstateRama) — Congresswoman Maxine Waters (CA-35), Chairwoman of the Financial Services Subcommittee on Housing and Community Opportunity, recognizing the impact foreclosures are having on the country, called on the attorneys general from the nation’s 50 states to bring suit against lenders in order to force more loan modifications.“We need aggressive action to force lenders to modify the predatory loans that they made. State attorneys general and civil rights groups are taking the lead in preventing foreclosures by filing lawsuits against the originators of these predatory loans, and I commend them for their action,†Chairwoman Waters said."
More bulling and threats by the left. Why were they not concerned about 'predatory loans' in 2002-2007. Why did Congresswoman Waters and the rest of the Demos wait so long to come up with 'predatory loans' when many were aware about the housing bubble?
Everything seemed fine back in 2002 to 2007 from Waters and dems who was defending Fannie Mae and government intervention in pumping homeownership at any cost.
attention race-baitors … Mr. Williams is a person of color. Irony rocks!!
Your point is?
not for you my friend, not for you.
If you go to my very first post you will see I place the blame on people first, and the CRA second. I do feel it is a fact that loans were made to non-qualified buyers due to pressure (both overt and subtle) from the new support given to the CRA by Klinton. You know banks were sued into making loans tp non-qualified buyers ... right? Now, since you know that did happen, and you know Obama himself was one of the masters who made a bank "pay" for not making up different loan rules based solely on someone's skin-color or chosen place of residence (nothing about re-paying the loan was worried about by Obama -- kinda like now) -- then you MUST have some reason as to HOW Obama and ACORN and other activist lawyers were able to hold banks ransom ... You must, must, must give me the reason/law/protocol/base-of-power that allowed that too happen. Since all of my research shows the VEHICLE used by B.Frank, Barry, and ACORN to take such action on banks was the words known as the CRA ... that is my logical conclusion. For my to think otherwise I would need for you to share with me some other VEHICLE to allow the same actions by the activists upon the banks. And since a few banks were forced by lawsuit into granting unqualified loans by racisits and liberal social engineers, you can't pretend that other banks did not act on the rulings placed on the banks that were targeted.
And one last thing, while a bank may have a building in a certian location, THAT should not mean the bank should be forced to lend to non-qualified buyers. Right? Or do you feel that money in a bank in Compton is somehow seperated from all other money and banks? Don't be silly, friend. We both know RE is local, but $$ is global. Making any rule or law based on race/skin tone/facial expression is racist. If you say no, then we will have to find that ruler/gauge I was asking the other fellow about.
So, what you’re saying is that your theory doesn’t hold water then? Because I reread your links and the majority deal with Barney Frank, Fannie Mae and Freddie Mac. I thought we were discussing the CRA? And none of the links contain any theories as to why the CRA would cause a non-regulated mortgage broker to make a bad loan to an applicant in a non-CRA area. And these loans are the ones that caused the housing bubble.
yes - most of my points were about people.
yes- the CRA gave social engineers and liberal activists more power against banks
no - there is not any boundry in place. Maybe you mistake lending brokers with banks? You will notice that no little local banks were ever targeted.
Walter Williams sure is smart.
http://www.highbeam.com/doc/1G1-16369608.html
Article: Lenders cry foul over fair lending prosecutions. (Oct 1994)
Back in 1990, alarm swept through the banking industry over the prospect that Community Reinvestment Act ratings might be made public. Individual bank scores had always been confidential, and the fear was that weak ratings, once revealed, would be grist for the headline mill.
That nightmare never materialized; only a tiny percentage of banks, mostly very small ones, have received poor CRA marks, and publicity has been scant. But these days, a nasty headline would be tantamount to a light slap on the wrist. The industry is now convulsed by another CRA issue whose implications are far scarier and more far-reaching: prosecution on charges of lending discrimination. ...
Commentary
A Government-Mandated Housing Bubble
Peter J. Wallison and Edward J. Pinto, 02.16.09, 12:01 AM EST
Subprime enablers: Fannie, Freddie, HUD and Barney Frank.
Where, then, did all the low-quality loans come from?
From 1994 to 2003, Fannie and Freddie's purchases of mortgages, as a percentage of all mortgage originations, increased from 37% to an all-time high of 57%, effectively cornering the conventional conforming market. With leverage ratios that averaged 75-to-1, and funds raised with implicit government backing, the GSEs were pouring money into the housing market. This in itself would have driven the housing bubble.
But it also appears that, perhaps as early as 1993, Fannie Mae began to offer easy financing terms and lowered its loan standards in order to meet congressionally mandated affordable housing goals and fulfill the company's trillion-dollar commitment. For example, in each of the years 2000 and 2001, the first years for which data are available, 18% of Fannie's originations--totaling $157 billion--were loans with FICO scores of less than 660 (the federal regulators' cut-off point for defining subprime loans). There is no equivalent data available for Freddie, but it is likely that its purchases were proportionately the same, amounting to an estimated $120 billion."
BTW, anyone recall how Fannie Mae and Freddie Mac were using using accounting fraud to cover up the losses from loans making them profitable, but were actual loses. It was to the tune of $90B back in before 2003.
"The Community Reinvestment Act gained strength in 1995, when the Clinton administration adopted a series of tougher guidelines that banned noncompliant banks from participating in any mergers, acquisitions or expansion projects."
NYT 2004
http://www.nytimes.com/2004/10/20/nyregion/20bank.html?pagewanted=all&position=
The Clinton administration adopted a series of tougher guidelines that banned noncomplient banks from participating in any mergers, acquisitions or expansion projects...unless they did what? :)
Wow--the propaganda machine is in full force this morning. If I understand your position correctly, you're saying that it's POSSIBLE that the government pressured banks under the CRA to make risky loans. And since it might have happened, then it must be the cause of the housing bubble. Despite all evidence to the contrary.
Still, I haven't seen anyone with a plausible explanation for how the CRA forced a non-regulated mortgage broker to make a risky loan to non-CRA area. Abe? Bap? Elvis? Anyone?
Doesn't it seem more likely that the people just didn't understand the risk? That everyone just assumed real estate prices would just keep rising?
Well .. lets try this another way to avoid traveling the same path redundantly. I will try to list the facts of the bubble the we all might agree on. Then add what you see I missed that is shared fact and point out any fact I list that you disagree with .. just to give us a point of referencs. Lets just try this way, please.
1) The lending standards were reduced from 20% down, to NINJA loans all around between 1995ish and 2005ish. Would you agree? If not, please pin-point the time frame for the reduction in lending standards and why.
2) Before the lending standards were reduced there were fewer possible buyers in the housing pool. Would you agree? If you disagree please share why the buyer pool increased.
3) The increase in pretend "entry level" buyers thanks to the new lower standards created higher demand and accelerated building/flipping/speculation. Would you agree? If you disagree, please explain where the increase in demand came from.
4) A push upwards in all markets due to the upwards push from the bottom was the next step in the bubble. Would you agree? If you feel the bubble was not expanded bottom-first, please give some detail.
Those are just 4 steps of the bubble reduced to very common terms in an effort to find where we do agree. I am not trying to load up on you or put words in your mouth. Would you please share your position on these 4 areas and add any detail that you feel would express your view better. Thank you.
OK--fair enough.
1. Yes, I would agree that lending standards were reduced in the early to mid-2000s
2. I don't know about that. I'd have to research the possible buyers in the housing pool. Are you thinking that because of house prices rising, people were priced out under normal lending standards?
3. I'm not sure I'd agree with that. I think the fact that prices were rising led to a speculative market--people chasing after returns. When you see your friend/neighbor/cousin make good $$ flipping or owning a house, you start asking why you couldn't do it too. The lower lending standards certainly allowed people to buy who had no reason buying though. So I mostly agree.
4. Yep--I'd agree with that.
yes- the CRA gave social engineers and liberal activists more power against banks
Or conversely maybe CRA just gave the "bad actors" the excuses they needed to commit fraud. You encourage me to lower my lending standards for a few people? Great I'll lower them across the board, clean up in fees, and get out of town before this all blows up. Sounds like a failure in REGULATION which of course will rankle you.
OK, so where did it all start? We're right back to the Community Reinvestment Act...aren't we? The current economic collapse had its roots in the CRA which is the main point. And like a tree, the problems created by CRA didn't happen over night - it took years, even decades for the damage completly manifest itself.
Tax payers will always be better off with less government intervention as opposed to more. Yes, yes, I know...of course we need police, firefighters, teachers and the like but what we don't need is never-ending government intervention, bordering on oppression - thats all. There so many laws now and new laws seem to get enacted every day. Does anyone know how many laws exist in America? I'd like to see some data on that question.
What this country badly needs is regulation allright...regulation of government!!! Abe
OK, so where did it all start? We’re right back to the Community Reinvestment Act…aren’t we?
No, we're not.
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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