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Maybe I'm in the minority but I don't see anything wrong with securitizing and packaging a pool of mortgages. In theory it should minimize the risks and make more capital available to a wider array of borrowers. I think the problem is that underwriting standards took a precipitous drop during the crisis.
So-called "community groups" like ACORN benefit themselves from the Community Reinvestment Act through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA "protest" is issued by a "community group." This can cost banks great sums of money, and the "community groups" understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities. The Government-Created Subprime Mortgage Meltdown by Thomas DiLorenzo
So you choose to focus on 6% percent of the sub-prime mortgages covered by the CRA while ignoring the other 94% of sub-prime mortgages that were not. Even though the 6% had a default rate similar or lower than the other 94%.
Sorry, but you are misinformed. But, I would expect the left to deny what their policies have done to our economy.
Even I remember going for a loan in the late 80's and we were told that our income did not need to be verified. They were called "no-qual" loans, and it was because of the CRA.
From a Oct 2008 Article:
1980s
With CRA came increased oversight of lending institutions to ensure they were giving credit to low- and moderate-income communities. Regulators expressed that CRA was not designed to compel credit allocation, nor did it require risky lending practices. Moreover, ECOA (Equal Credit Opportunity Act) and FHA, not CRA, were in place to address discrimination in lending. But community organization groups like the radical ACORN began efforts to reshape CRA into government-imposition, in accord with what "affirmative obligation" might suggest. They began pressing the semantic open door and stretching the "discrimination" provision to complain about enforcement of the regulations as lending institutions resisted bad lending practices in poor minority communities.
This article makes it pretty clear where the responsibility lies, and it is primarily with government policies, not the banks.
Care to explain how the collapse of Lehman Brothers [the firm mentioned in the linked article], which was not covered by the CRA, was caused by the CRA?
If Fannie and Freddie were not behind these mortgages the bundling could not have occurred. End to your argument.
You do realize that Fannie and Freddie were not the only ones bundling mortgages? That Fannie and Freddie lost 20% of market share as non-GSE mortgage players expanded their sub-prime portfolios independent of what the GSE's were doing.
Pretty funny how the two cowardly deceitful brainfarts that dreamed up and sponsored laws that forced bank into lending money to normally unqualified folks have announced their retirement.
Barny Fwank & Chris Dodd will run to the shadows like cockroaches as their handiwork surfaced from the bottom of the swamp.
Maybe I'm in the minority but I don't see anything wrong with securitizing and packaging a pool of mortgages. In theory it should minimize the risks and make more capital available to a wider array of borrowers. I think the problem is that underwriting standards took a precipitous drop during the crisis.
Its the in theory part that is the problem. Check out the CDO cubed securities to see how insane and risky market place became.
In short a CDOs were bundled mortgage back securities. The CDO itself was sold off to investors at varying risk levels. Parts of the CDO were rated AAA. But investors weren't interested in the lower rated parts of the CDO. So the lower rated parts are then bundled into CDO squared securities. Parts of the CDO squared security are rated AAA, but other parts have much lower ratings. Again the lower rated parts, that the investors were not interested in were bundled together into CDO cubed securities. Parts of the the new CDO cubed security is sold as AAA rated investment. The investment banks would repeat the process as often as they could manage. The would buy CDS from companies like AIG to decrease the risk.
However this all required a constant stream of new bundled mortgages and they didn't care what the quality of the mortgages were because the were going to bundle them into CDOs and sell them as AAA rated investments.
Too many actually believed that this made sense and was totally safe. AIG who was selling insurance on the AAA rated parts of the CDO predicted that the loss rates would be less 1%, therefore they didn't set aside a loss reserve.
All this done in a non-regulated, non-transparent market place.
Would you provide some citations here, because I think you have your history wrong.
It was Clinton that greatly expanded the CRA. I don't believe that Bush expanded it further.
Bush's mission to get 5.5 million low income minorities mortgages when they would not otherwise qualify for them.
Mobilizing the Private Sector: America's Homeownership Challenge
Establish a national goal of at least 5.5 million new minority homeowners before the end of the decade.
Challenge the private sector real estate and mortgage finance industries to dramatically increase their efforts to reduce the barriers to homeownership faced by minority families and to work with the nonprofit sector in a concerted effort to achieve this goal through national and local partnerships.
Convene a White House Conference on Increasing Minority Homeownership, to highlight the homeownership barriers faced by minorities and develop proposed solutions.
A substantial increase of at least $440 billion in the financial commitment made by the government-sponsored enterprises involved in the secondary mortgage market, specifically targeted toward the minority market;
Twenty-five different local initiatives to be undertaken across the nation, geared toward eliminating the specific homeownership barriers faced by minority families in those communities;
A commitment to raise $750 million in below-market-rate investments by 2007, which will work in collaboration with local homeownership initiatives and be targeted to heavily minority program areas;
Pursuing strategic partnerships in 20 top housing markets between homebuilders, lenders, local officials, and community leaders to develop approaches that address the local challenges to building homes for minority families living in urban centers;
Establishing of faith-based housing partnerships between the participants and at least 100 churches, mosques, synagogues, and other faith-based institutions;
Aggressively developing new mortgage products so that conventional market alternatives are available to combat the predatory loan products that are disproportionately targeted to minorities;
Creating new mortgage products to meet the unique needs of recent immigrants;
Dramatically expanding financial education efforts for minorities, providing financial counseling to at least 380,000 minority families, and taking measures at the local level to reduce predatory lending; and
Establishing multilingual, consumer-oriented internet Web sites designed to help minorities overcome barriers to homeownership, including creation of a central data bank of affordable housing programs made available to real estate agents when working with clients.
Yes, and that was in 2002. He made many such speeches and worked hard to lower lending standards for people who would not qualify for loans. He did it over 40 times all in all.
If Fannie and Freddie were not behind these mortgages the bundling could not have occurred. End to your argument.
According to whom? Anyone can buy a mortgage (and banks have been for decades) and bundling had been used for many years to decrease the systemic risk of loan.
If that's the entirety of your 'proof,' it's rather weak.
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