patrick.net

In order to qualify for CRA credits the loan had to be made w/in a "red-lined' neighborhood. Show me a 'red-lined' neighborhood in Portland, Oregon, Las Vegas, NV, etc. More than half the subprime loans made in the past ten years were done so by private mortgage lenders NOT regulated by CRA.

Ask yourself this, how long has VA and FHA loans been around and to what degree do those loans partake in the market. These are practically zero down and allow for some not so great credit scores.

Why wasn't these a housing bubble in Selma and Cuba, Alabama? Wanna talk about poor... ( I chose these particular locations since I have relatives there)

So what was the 'reward' for earning CRA credits???? How were the banks 'FORCED' to make bad loans. In the early years, what were the percentage that went bad?

Honest--

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

Hey Abe, here's a bunch of info with links so you can check sources:

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

Seems like blaming the CRA is like blaming my great grandma for my frustrations with this country. Why the hell couldn't she stay in Czechoslovakia? What was so great about the USA in 1900?!;O) The CRA was a great concept but has been destroyed by further legislative action though it alone is not to blame for this housing and credit bubble/crisis.

"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? "

Of course not. The point is 1, 2, and 3 had nothing to do with CRA, and your 'pebble in the pond' is just hand waving nonsense without explaining cause and effect.

I'm not sure what happened to the other thread. Vanished into the either. What's to point of going to the trouble to post anything? I'm done here.

Abe what are you talking about? Subprime, low income, and CRA are not synonyms. Many subprime mortgages were pretty high up on the income ladder. http://seekingalpha.com/article/49701-subprime-mortgages-crossing-income-and-credit-strata gives a pretty good read about this. How can CRA be the cause of the housing bubble in the US but have nothing to do with the housing bubble in the rest of the world? You are saying there were 2 independent simultanious housing bubbles (the USA and the rest of the world) created by entirely different causes. Really? That's very interesting theory.

There is one and only one cause of the housing and economic crash everywhere in the world. The people who signed on the bottom line for houses they could not afford gambling they would cash in on the housing lottery. No one forced people to carry unaffordable mortgages with no savings in case of a downturn. Renting or buying a smaller more affordable house was always an option. I did and bitterly resent anyone or any irresponsible company being bailed out with my tax money. What happened to being responsible for your own actions?

bob2356 says

There is one and only one cause of the housing and economic crash everywhere in the world. The people who signed on the bottom line for houses they could not afford gambling they would cash in on the housing lottery. No one forced people to carry unaffordable mortgages with no savings in case of a downturn. Renting or buying a smaller more affordable house was always an option. I did and bitterly resent anyone or any irresponsible company being bailed out with my tax money. What happened to being responsible for your own actions?

Excellent post.

bob2356 says

There is one and only one cause of the housing and economic crash everywhere in the world. The people who signed on the bottom line for houses they could not afford gambling they would cash in on the housing lottery. No one forced people to carry unaffordable mortgages with no savings in case of a downturn. Renting or buying a smaller more affordable house was always an option. I did and bitterly resent anyone or any irresponsible company being bailed out with my tax money. What happened to being responsible for your own actions?

I also agree that this is an excellent post. Even though I am retired, I am forced by the state of California to pay absurd taxes every quarter. I know that even though I do not work, I am paying for the f***ing flakes who did not buy responsibly. I am their freaking bailout!!!!

Don't even get me started on how I am forced to pay for the illegals...

I understand the frustration with the individual loanowner but what the hell were the banks thinking lending so much money to folks who obviously couldn't afford it?!?! Hey, I make 40K and support my family of four, would you as an individual loan me $400K? Hell NO! So why did the banks do it?

Elvis--

Could you explain how you came to the conclusion that

elvis says

(1) Its pretty clear the feeding frenzy was started by CRA and the gov’t required lax lending requirements. Banks that had standards exceeding that of Regulators were considered to have “unfair lending practices.”

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.

elvis says

(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 nothing…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.

elvis says

(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.

Elvis--

You still haven't made the connection between lowered lending standards and CRA. You say:

elvis says

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...

So why would a bank want to make a bad loan? I'm really not seeing the connection here.

Once again, what was the reward for making a loan to someone within a red lined neighborhood?

Giving so much blame to CRA and ignoring FHA/VA demonstrates significant ignorance. And how again did New Zealand and other countries get impacted by our CRA?

Its not financially bad if they can sell that loan to someone else at an immediate profit then make another and sell, then another, etc.

Fireballsocal says

Its not financially bad if they can sell that loan to someone else at an immediate profit then make another and sell, then another, etc.

When CRA was initiated that was not possible. Your statement can be made about the other 99.9% of the loans that were not CRA credits.

CRA caused this too! http://www.katu.com/news/business/64613107.html

"NEW YORK (AP) - One of America's wealthiest men was among six hedge fund managers and corporate executives arrested Friday in a hedge fund insider trading case that authorities say generated more than $25 million in illegal profits and was a wake-up call for Wall Street.

Baseline Scenario has some great tutorials: http://baselinescenario.com/financial-crisis-for-beginners/

Keep reading and turn off the opinion pieces disguised as journalism.