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Old 06-05-2013, 12:17 PM
 
22,769 posts, read 26,126,307 times
Reputation: 14556

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Quote:
Originally Posted by Loveshiscountry View Post
In 1996, the Department of Housing and Urban Development set a target for Fannie and Freddie that 42 percent of their investment must go to CRA-eligible borrowers. The same target was increased to 50 percent in 2000 and then to 52 percent in 2005.

yes, but at the same time , they expanded their definition of "CRA eligible" to include the majority of Americans. So a middle-income person in a rural area of Kansas might be "CRA eligible." You were probably "CRA eligible."

It's different to be "CRA eligible", than to have one of these "CRA Special Loans", which were basically loans to poor people.

2005 revisions define new CRA-eligible geographic areas - Community Dividend - Publications & Papers | The Federal Reserve Bank of Minneapolis


Quote:
Mid 2000's was about the time the interest rates bottomed out. The Federal Reserve is the real culprit imo. The CRA was just the tool.
Well, I agree that the Federal Reserve played a major role -- but to me the part where you blame the CRA, i blame on the private banking system and its (lack of) regulators. Remember, that when the crisis hit, it wasn't Fannie and Freddie going under. it wasn't the government going under. It was Lehman Brothers. It was all the banks that refused to lend to one another. The crisis started in the private sector, it was a private sector creation. The goverment allowed it, the government didn't cause it.


Fannie and Freddie, for the most part, didn't buy bad loans. They loosened their standards a little bit towards the end of the bubble, because Congress (morons) were worried that fannie and freddie would lose market share to these nonconforming loans coming out of firms like Countrywide. The bulk of bad loans were nonconforming, in that they went straight from countrywide to investors without going through the GSE's.

Last edited by le roi; 06-05-2013 at 12:26 PM..

 
Old 06-05-2013, 12:50 PM
 
31,385 posts, read 32,002,442 times
Reputation: 14896
Quote:
Originally Posted by le roi View Post
Well, I agree that the Federal Reserve played a major role -- but to me the part where you blame the CRA, i blame on the private banking system and its (lack of) regulators. Remember, that when the crisis hit, it wasn't Fannie and Freddie going under. it wasn't the government going under. It was Lehman Brothers. It was all the banks that refused to lend to one another. The crisis started in the private sector, it was a private sector creation. The goverment allowed it, the government didn't cause it.
You have this exactly right. There is nothing in the CRA what urges, demands or encouraged banks to lend to unqualified buyers. The evidence of banks and commercial lenders not only ignoring due diligence but completely abandoning the practice in order to process more loans that were then converted to financial instruments to be sold on the market without the slightest ability of purchasers to verify their value. That along with the preoccupation of the Federal Reserve of maintaining low interest rates provided the seed for the financial collapse. Why this is so hard to grasp is beyond me.
 
Old 06-05-2013, 12:56 PM
 
69,372 posts, read 55,339,374 times
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Quote:
Originally Posted by gwynedd1 View Post
Not because they ran out of money. Not a fiscal problem. Do you know the difference between the bookie losing his book vs having no race horses? Of course you don't by what is implied every time you post.
You dont know what you're talking about
1998 Russian financial crisis - Wikipedia, the free encyclopedia


The horse stopped running because they couldnt pay the jockeys
 
Old 06-08-2013, 05:44 AM
 
Location: Texas
26,609 posts, read 11,139,524 times
Reputation: 6102
Quote:
Originally Posted by ovcatto View Post
Quote:
Originally Posted by le roi View Post
Well, I agree that the Federal Reserve played a major role -- but to me the part where you blame the CRA, i blame on the private banking system and its (lack of) regulators. Remember, that when the crisis hit, it wasn't Fannie and Freddie going under. it wasn't the government going under. It was Lehman Brothers. It was all the banks that refused to lend to one another. The crisis started in the private sector, it was a private sector creation. The goverment allowed it, the government didn't cause it.
You have this exactly right. There is nothing in the CRA what urges, demands or encouraged banks to lend to unqualified buyers. The evidence of banks and commercial lenders not only ignoring due diligence but completely abandoning the practice in order to process more loans that were then converted to financial instruments to be sold on the market without the slightest ability of purchasers to verify their value. That along with the preoccupation of the Federal Reserve of maintaining low interest rates provided the seed for the financial collapse. Why this is so hard to grasp is beyond me.
You mean like "there is nothing that encourages investors especially low interest rates".
That's my point, the CRA got the ball rolling on it. Without it, the interest rates wouldn't have been lowered which caused the mal investment.

"i blame on the private banking system and its (lack of) regulators."

When you say that you are talking about regulators who approved sub prime loans?
 
Old 06-08-2013, 05:54 AM
 
Location: Texas
26,609 posts, read 11,139,524 times
Reputation: 6102
Quote:
Originally Posted by ovcatto View Post
You have this exactly right. There is nothing in the CRA what urges, demands or encouraged banks to lend to unqualified buyers. The evidence of banks and commercial lenders not only ignoring due diligence but completely abandoning the practice in order to process more loans that were then converted to financial instruments to be sold on the market without the slightest ability of purchasers to verify their value. That along with the preoccupation of the Federal Reserve of maintaining low interest rates provided the seed for the financial collapse. Why this is so hard to grasp is beyond me.

Under the CRA, if a bank wants to make virtually any change in its business operations — merging, opening up a new branch, getting into a new line of business — it must first prove to regulators that it has made "enough" loans to the government's preferred borrowers. The (partially) tax-funded "community groups" like ACORN (Association of Community Organizations for Reform Now) can file petitions with regulators that stop the bank's activities in their tracks, perhaps defeating them altogether.


"There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas. To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.
The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.
"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."
She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting."
From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features.
When the lending standards were lowered, they were lowered for everyone.
 
Old 06-08-2013, 06:55 AM
 
69,372 posts, read 55,339,374 times
Reputation: 9358
Quote:
Originally Posted by Loveshiscountry View Post
When you say that you are talking about regulators who approved sub prime loans?
The government did, when they agreed to insure them.
 
Old 06-08-2013, 06:58 AM
 
69,372 posts, read 55,339,374 times
Reputation: 9358
Quote:
Originally Posted by Loveshiscountry View Post
She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting."
From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features.
When the lending standards were lowered, they were lowered for everyone.
And do you know why it was 3%? Because that was the amount of equity that banks were required to have on hand, meaning that if they had $100M in deposits, they could loan out $97M. Democrats demanded this to be even lower multiple times.

They had congressional hearings because Bush wanted to increase this amount because of an oncoming pending economic collapse which could take place, (these hearing started in 2002), and Democrats LAUGHED at the notion.
 
Old 06-08-2013, 09:42 AM
 
Location: Texas
26,609 posts, read 11,139,524 times
Reputation: 6102
Quote:
Originally Posted by pghquest View Post
And do you know why it was 3%? Because that was the amount of equity that banks were required to have on hand, meaning that if they had $100M in deposits, they could loan out $97M. Democrats demanded this to be even lower multiple times.

They had congressional hearings because Bush wanted to increase this amount because of an oncoming pending economic collapse which could take place, (these hearing started in 2002), and Democrats LAUGHED at the notion.
I wonder what percentage of failed loans were underwater? If I had equity in a house I'm probably not walking away. Owing 250k on a 200k house I most likely will walk. Especially the first time home owners or those who didn't refinance and have no emotional attachment to the house.
 
Old 04-05-2015, 03:08 PM
 
Location: North America
5,936 posts, read 4,653,906 times
Reputation: 1924
Quote:
Originally Posted by pknopp View Post
There were regulations in place. The government regulators ignored them and are still ignoring them. The problem wasn't all because of a lack of regulations but rather unenforced regulations.

Countrywide could have been shut down long before it was and Mozilo had his sorry arse thrown in prison before it collapsed if the government had simply enforced it's regulations.

The reason Mozilo was able to retire with millions and millions in the bank and not put in prison is because the government wanted Countrywide to do what it was doing. Providing loans to those who could not actually reasonably be expected to repay them.

In my earlier link Greenspan notes where he thought the markets could absorb all of this but he was wrong. I would love to see someone kick Greenspan in the nuts. Greenspan did hundreds of time more financial damage than Madoff.
Agreed. I can't understand why politicians are always looking to add new regulations when the old ones are just fine as long as they are enforced (especially banking regulations).
 
Old 04-05-2015, 05:07 PM
 
11,618 posts, read 5,903,484 times
Reputation: 1694
Economists never take into consideration the gaming instinct of humans.

Humans like to play.

Economists are too serious to comprehend "play".

Paper is a lot easier to game than metal.

Economists presume mettle is equivalent to metal.

Economists are made up of, assumers, presumers and consumers. (And this includes von Mises)

This is why economics is the science of gloom.

The designated escape from dismal land, for many, had been Disneyland.

In the 50s, you had to have a damned good reason if you were caught smiling.

You had better a-been selling something!

In the 60s, smiling for no visible reason, almost became legal.

By the 80s, smiling mostly only occurred during swindles.
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