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Canada has been much stricter about limiting banks’ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding — a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other people’s money.
11% of all mortgages between 2004-2006 count towards an institution’s CRA evaluation. 17% of those, as a % of the dollar amount, were extended under special lending programs, the remainder were business that would've occured with or without CRA.
That leaves you with 1.87% of all loans being a CRA loan.
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CRA loans accounted for billions of dollars in defaults.
Source?
By the way, prime loans, jumbo loans, subprime loans , Alt-A loans. etc. also had billions of dollars in defaults. That's what happens in a housing bubble.
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Countrywides $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.
Those aren't CRA. Countrywide had no obligation to the CRA program. It wasn't a depository institution.
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You mean like Austrian Economics which told us the bubble was coming from day one?
Austrian economics doesn't have a damn thing to do with the CRA.
The conundrum that created the Housing/Credit Crisis was that banks were actually being to strict and in some cases looked like they were discriminatory (red lining) in their lending practices. The Federal Reserve issued a "guidance" (which is basically saying you need to do these things to be in compliance with the law). The name of that guiding light was "Closing the Gap" and the Boston Federal Reserve produced it. You can read it here: http://www.bos.frb.org/commdev/closi...p/closingt.pdf
Which is nothing more than an informational packet.
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Now comes the part that, as far as I can tell, started the lowering of lending standards. You use o be able to copy sections of the "guide" and paste them directly to this site without having any issues. Apparently someone decided that they shouldn't be able to be posted to forums and things so they added some sort of partition between each word so that the words, when pasted, land on top of each other. So you'll just have to read it. I can come back later to discuss but I'm out of time right now.
So the lowering of lending standards was caused by the lack of cut-and-paste functionality to the city-data forums?
Wow, I think I've now officially heard every excuse in the book.
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One thing to remember though is that the CRA is mentioned in that "guideline" along with a few other acts that they used (as the iron fist) to their "guidance."
Also, on page 9 you can clearly see that the "guidelines" weren't all created by just mortgage lenders and bankers. You also had credit counseling agencies, fair housing organizations and social research groups. So hopefully we can dispense with the "bankers did it all" nonsense (not that you said that). Those underwriting standards start on page 13.
None of this supports the argument that CRA performed worse than subprime, or that CRA caused anything.
I agree with everything but the Keynesian part. I really don't care what one thinks one way or the other nearly as much as knowing what it is they are talking about. Keynesian economics in this context is about spending on tangible public infrastructure during high unemployment because labor is cheap, specifically because the opportunity cost of labor is zero compared to unemployment. There is nothing about monetary policy and housing bubbles.
That said I would have been happy to have Rothbard's dream come true. Banks failures = good. But guess what, I am a Keynesian if you are. When banksters dump all their crap on us and got all juiced up with treasuries and bailouts, I am supposed to be a good Austrian for ya? We are supposed to tank the economy so that it can be bought up by the insider scum? Ron Paul after the bailout is as much a scam as the bailout out. Once the banks are "saved", sorry its not a market anymore.
You do what? Know what you're talking about? Apparently not because you seem to be arguing that I think the CRA created this whole mess and is entirely to blame. That's not at all what I said. What I said was:
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One thing to remember though is that the CRA is mentioned in that "guideline" along with a few other acts that they used (as the iron fist) to their "guidance."
So, what words are you trying to put in my mouth regarding the CRA?
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Originally Posted by le roi
Which is nothing more than an informational packet.
I'm sorry. I mistook you for someone that might have known a smidgen of what you were talking about. If you think the Federal Reserve sends out informational packets pointing out laws that banks shouldn't be breaking as some sort of friendly gesture then you just need to stop posting because you clearly don't understand anything you're talking about.
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Today, the Federal Reserve's duties fall into four general areas:
conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
I highlighted the part that you so clearly are ignorant of.
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Originally Posted by le roi
So the lowering of lending standards was caused by the lack of cut-and-paste functionality to the city-data forums?
Wow, I think I've now officially heard every excuse in the book.
Oh, how cute. What a smug little sh*t you are.
God forbid you read the link. In it you would see:
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The compensation structure for loan production staff should not discourage them from working with lower–income or financially unsophisticated applicants. If staff are compensated according to a pay structure based simply on the number and size of loans closed, they will be reluctant to work with applicants who require more time and assistance or who are requesting relatively small loans.
Property Standards and Minimum Loan Amounts:
These standards should be checked for arbitrary rules as to the age, location, condition, or size of the property. Such standards could negatively affect applicants who wish to purchase two– to four–family homes, older properties, or homes in less expensive areas.
Obligation Ratios:
Special consideration could be given to applicants with relatively high obligation ratios who have demonstrated an ability to cover high housing expenses in the past. Many lower–income households are accustomed to allocating a large percentage of their income toward rent. While it is important to ensure that the borrower is not assuming an unreasonable level of debt, it should be noted that the secondary market is willing to consider ratios above the standard 28/36.
Down Payment and Closing Costs:
Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership by lower–income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. Cash–on–hand could also be an acceptable means of payment if borrowers can document its source and demonstrate that they normally pay their bills in cash.
Credit History:
Policies regarding applicants with no credit history or problem credit history should be reviewed. Lack of credit history should not be seen as a negative factor. Certain cultures encourage people to “pay as you go” and avoid debt. Willingness to pay debt promptly can be determined through review of utility, rent, telephone, insurance, and medical bill payments. In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts.
Successful participation in credit counseling or buyer education programs is another way that applicants can demonstrate an ability to manage their debts responsibly. (See the section on Buyer Education.)
Property Appraisal/Neighborhood Analysis:
Terms like “desirable area,” “homogeneous neighborhood,” and “remaining economic life” are highly subjective and allow room for racial bias and bias against urban areas. The same holds true when lenders evaluate properties based on their market appeal or compatibility with the rest of the neighborhood. (See the section on Third Party Involvement in the Loan Process.) It should be noted that the Federal Home Loan Mortgage Corporation (Freddie Mac) has stated that neighborhoods undergoing revitalization should be assessed on their potential as well as their existing condition. Also, the Federal National Mortgage Association (Fannie Mae) will accept block–by–block underwriting analyses in urban neighborhoods being rehabilitated.
Employment History:
It is important to distinguish between length of employment and employment stability. Many lower–income people work in sectors of the economy where job changes are frequent. Lenders should focus on the applicant’s ability to maintain or increase his or her income level, and not solely on the length of stay in a particular job.
Sources of Income:
In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
So, who wants to come out and say something stupid like "So the lowering of lending standards was caused by the lack of cut-and-paste functionality to the city-data forums?"
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Originally Posted by le roi
None of this supports the argument that CRA performed worse than subprime, or that CRA caused anything.
I'd suggest you take basic reading level comprehension because you're severely lacking in it.
Anyways, "Closing the Gap" was put out in April of 1992. It wasn't but just a few short years after that that fraud started occurring as evidenced by the FCIC:
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The number of suspicious activity reports—reports of possible financial crimes filed by depository banks and their affiliates—related to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. One study places the losses resulting from fraud on mortgage loans made between 2005 and 2007 at $112 billion.
I have a related question. Why do Capitalist economies tend to have speculative booms followed by disastrous busts? For example the "Tulip boom and bust", the "South Sea Disaster" and now the Housing Boom and Bust all were caused by speculation. Why do capital markets become casinos?
To pay for government programs that can't get financing on their own.
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.
To pay for government programs that can't get financing on their own.
Uh what? Housing was not a government program. Influenced surely just like bacon and orange juice is. The biggest financial mess in history involved lots of private interest we call Wall Street. Wake the hell up and stop smelling Jamie Dimon's jock.
Uh what? Housing was not a government program. Influenced surely just like bacon and orange juice is. The biggest financial mess in history involved lots of private interest we call Wall Street. Wake the hell up and stop smelling Jamie Dimon's jock.
You have no clue what you are talking about or my positions.
11% of all mortgages between 2004-2006 count towards an institution’s CRA evaluation. 17% of those, as a % of the dollar amount, were extended under special lending programs, the remainder were business that would've occured with or without CRA.
That leaves you with 1.87% of all loans being a CRA loan.
I'm still not understanding how you got 1 percent when, the percentage of lower-quality subprime mortgages originated during a given year rose from the historical 8% or lower range to approximately 20% from 2004 to 2006, with much higher ratios in some parts of the U.S.
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Originally Posted by le roi
I posted - CRA loans accounted for billions of dollars in defaults.
Countrywides $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.
you posted - Source?
If Countrywides $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003, wouldn't just a 1 percent default mean 6 billion?
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Originally Posted by le roi
By the way, prime loans, jumbo loans, subprime loans , Alt-A loans. etc. also had billions of dollars in defaults. That's what happens in a housing bubble.
yes fueled by the worst evaluators of the value of a house. First time buyers who were not credit worthy and therefore didn't understand the value of a dollar.
How many times did we hear, "Everyone should be in their own house."
Bush even pushed it during the 2004 republican convention
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Originally Posted by le roi
Those aren't CRA. Countrywide had no obligation to the CRA program. It wasn't a depository institution.
Countrywide lends to both prime borrowers — those with sterling credit — and so-called subprime, or riskier, borrowers. Among the $470 billion in loans that Countrywide made in 2006, 45 percent were conventional nonconforming loans, those that are too big to be sold to government-sponsored enterprises like Fannie Mae or Freddie Mac. Home equity lines of credit given to prime borrowers accounted for 10.2 percent of the total, while subprime loans were 8.7 percent.
Countrywide made the loans, as did others, in order to receive preferential rates.
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Originally Posted by le roi
Austrian economics doesn't have a damn thing to do with the CRA.
of course it does. It preaches getting government out of manipulating business.
I had a credit score of 700 but only put down 5 percent. Is that a sub prime loan? Is that a wise business decision that banks lent money to in the past?
The low down payments were a huge problem too.
Also are you differentiating sub prime loans from "independent banks" as non CRA loans?
Last edited by Loveshiscountry; 06-04-2013 at 02:20 AM..
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