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The CRA didn't bankrupt Lehman Brothers or Bear Stearns. The CRA didn't force Merrill Lynch to buy a major sub-prime lender that threatened its future. The CRA didn't cause AIG to set almost zero reserves to cover potential losses from Credit Default Swaps it was selling. The list of reasons for the financial collapse goes on and on and very little of it has to do with the CRA. Most of it has to do with resistance to sensible regulation of the financial markets and the lack of transparency in the derivatives market.
I would like to see a story from a legitimate outlet, but your response still does not answer the question, where did the CRA force the banks to give out bad loans. The intent was to address redlining, not giving loans to qualified applicants in inner city neighborhoods by local banks. Please explain why the leading amount of defaults were in Nevada and Florida, not in inner city neighborhoods and what part of the CRA "forced" their hand.
A estimated 60 percent of the subprime loans were made by non-bank mortgage companies, which are not covered by CRA. 35 percent of loans were made by subsidiaries of banks or thrifts, which are allowed—at their option—to use loans made by these subsidiaries to count toward their CRA rating (but are not making CRA loans).
Harrier is 100% correct---the CRA wasn't REALLY enforced until Bubba Clinton put it on steroids in 1994, as Thomas Sowell, Walter E. Williams & numerous other media outlets reported back then.
Obama was right in the middle of it as well during his 'community organizer' days; as the Chicago Sun Times reported in 1995, he filed lawsuits against Citbank on behalf of local radical outfits such as ACORN, charging them with practicing something called redlining, which isn't a crime anywhere except in the minds of radicals such as Obama, Sharpton, Wright, Rangel, Kersosene Maxine Waters (thank you Larry Elder!!!) and other certified lefties.
He didn't need to sue Citibank, they were perfectly willing to make bad loans on their own, their greed is legendary. Your response is humorous.
"Last week Citibank Inc agreed to pay $158 million to settle accusations that it took advantage of a federal mortgage insurance program.
Below are a few paragraphs from the Los Angeles Times. In a settlement with the Justice Department, Citi admitted that it provided misleading information about the quality of its mortgages to a federal insurance program run by the U.S. Department of Housing and Urban Development. The government provided backing for the mortgages and ended up losing millions when the borrowers defaulted. The government insurance allowed Citi to give cheaper loans to less-credit-worthy borrowers and then to sell the loans to investors. The complaint provides another look at how the nation’s largest banks helped inflate the mortgage bubble by misleading government authorities"
Coming again real soon to a neighborhood near you; yet another housing crash from the folks 100% responsible for the last one.
Thanks guys!!!!
The CRA played a large part in causing the housing crash we went through but won't cause a second.
To be more specific:
The role of the CRA wasn't in the direct damage it did, but, in inspiring securitization. Banks, forced to make loans their underwriters and analysts knew were no good, wanted them off their books. The solution was to cut them up into tranches and sell them to third-party investors. Then something really bad happened: those third-party investors bought the securitized loans at way too high of a price. The bankers saw $$$ and started securitizing more and more other loans that had nothing to do with the CRA. As their business model shifted from investors in people to brokers, they lost their incentive to vet borrowers and gained an incentive to sign as many loans as possible - after all, they'd take their cut and if something went wrong someone else would be on the hook. Not every bank did this of course. However, those that did resulted in a massive loosening of lending standards. Even those not playing the securitization game had to lower their standards: it was that or be driven out of the markets by those that did. Nearly unlimited credit caused values to soar, creating a feedback loop of ever-rising prices and ever-loosening standards and higher demand for securitized loans. The rest is history.
Now, where this gets interesting is it means the CRA won't cause a second bubble/crash. Two reasons: first, the securitization cat is already out of the bag, so it can't be "released" a second time. Secondly, getting burned in the crash has gotten investors to realize how dangerous those securities are and so will be less likely to snap them up like overpriced hotcakes in the future.
The CRA played a large part in causing the housing crash we went through but won't cause a second.
To be more specific:
The role of the CRA wasn't in the direct damage it did, but, in inspiring securitization. Banks, forced to make loans their underwriters and analysts knew were no good, wanted them off their books. The solution was to cut them up into tranches and sell them to third-party investors. Then something really bad happened: those third-party investors bought the securitized loans at way too high of a price. The bankers saw $$$ and started securitizing more and more other loans that had nothing to do with the CRA. As their business model shifted from investors in people to brokers, they lost their incentive to vet borrowers and gained an incentive to sign as many loans as possible - after all, they'd take their cut and if something went wrong someone else would be on the hook. Not every bank did this of course. However, those that did resulted in a massive loosening of lending standards. Even those not playing the securitization game had to lower their standards: it was that or be driven out of the markets by those that did. Nearly unlimited credit caused values to soar, creating a feedback loop of ever-rising prices and ever-loosening standards and higher demand for securitized loans. The rest is history.
Now, where this gets interesting is it means the CRA won't cause a second bubble/crash. Two reasons: first, the securitization cat is already out of the bag, so it can't be "released" a second time. Secondly, getting burned in the crash has gotten investors to realize how dangerous those securities are and so will be less likely to snap them up like overpriced hotcakes in the future.
The fiancial sector welcomed the bad loans, it was a money maker, Goldman Sachs knew they were bad investments, they nbet on both sides recommending them to their investors while they bet against them.
Read Big Short by Michael Lewis, they knew exactly what they were doing, infortunately companies like AIG did not and got stuck with the bad loans. CRA was not the focus of the problem , it was greed, CRA has been around decades.
"Obtaining mortgage aid by claiming "discrimination" has become a high art. The problem is that someone always has to pay. Just ask Wells Fargo & Co. On July 12, the San Francisco-based bank, the nation's largest mortgage originator, agreed to spend $175 million to settle accusations by the U.S. Department of Justice (DOJ) that for several years it steered black and Hispanic homebuyers toward high-cost loans, so it could charge excessive interest and fees. The agreement, in which Wells Fargo admitted no wrongdoing, ostensibly will defray borrower losses and expand homeownership opportunities in lower-income areas. More likely, it will raise the cost of borrowing for everyone, lower underwriting standards and keep lawyers employed. It amounts to a shakedown. And in the context of the big picture, $175 million is on the low side."
Sue to force em to loan to high risk borrowers then later on sue for charging em higher interest which is what happens when your high risk. Or sue for predator lending when you previously sued to force the banks to lend to em in the first place. It's all nonsense the banks (who I am no fan at all of with thier BS securitization and selling notes over and over again) are caught in the middle of this game too. I'd say good stick it to the banks but in reality they are sticking it to all the borrowers and customers who will pay the cost of this in the end.
The fiancial sector welcomed the bad loans, it was a money maker, Goldman Sachs knew they were bad investments, they nbet on both sides recommending them to their investors while they bet against them.
Read Big Short by Michael Lewis, they knew exactly what they were doing, infortunately companies like AIG did not and got stuck with the bad loans. CRA was not the focus of the problem , it was greed, CRA has been around decades.
It was a money maker on the taxpayers backs. All these mortgage companies sold fannie/freddie backed securities then sold em to fannie/freddie who securitized and sold those all off to Lehman and the boys. They all thought it was a safe bet until the bubble burst due to actions like this thousands of people unable to afford their payments or house flippers caught with six or ten mortgages and they just walked away. Now it's a mess. Good luck even finding out who holds your note as it's been passed around who knows how many times. Apparently courts don't care because they keep issuing foreclosure judgements on folks when they don't even prove they have standing to file the thing in the first place. Judges just move it along. No we have Fannie/Freddi bailing out homeowners too because they don't know what the hell to do with all the properties that would be sitting vacant from all the folks who have given up and walked away. We pay for all that and to top it off the servicers like Wells or BOA get bonuses from fannie for modifications on folks loans that we are paying for.
The fiancial sector welcomed the bad loans, it was a money maker, Goldman Sachs knew they were bad investments, they nbet on both sides recommending them to their investors while they bet against them.
Read Big Short by Michael Lewis, they knew exactly what they were doing, infortunately companies like AIG did not and got stuck with the bad loans. CRA was not the focus of the problem , it was greed, CRA has been around decades.
Dude, if you had read my post beyond the first sentence you'd realize that what I had explained, in a nutshell, is how the greed you are talking about caused the crisis AFTER the CRA had shown the banking industry that there was money to be made in securitization and acting as brokers rather than investors, via their experience unloading the unwanted CRA loans.
To be even less abstract, the CRA was the match that started the fire burning - the wood on the other hand was a combination of greed/profit motive (depending on your POV) and the inability of other investors to adequately understand the risks involved and thus proper pricing. And just like in our analogous fire, once all the flammable material is burnt down lighting another match is not going to start another conflagaration.
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