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“The appropriate allocation of credit is not political, it is based on merit. Those with good credit receive the best terms and lowest rates. Those with bad credit receive the worst terms and the highest rates, or in some cases, no credit at all,” he said.
“The CRA was an attempt to get around this fact and it failed. I remind my colleagues of this as we prepare to buy assets backed by the very same mortgages born of this flawed policy,” Shelby added.
The big originators were not FDIC- insured banks and thus were not regulated by the CRA or most other regulations.
Banks historically discriminated against minority borrowers. The interest rate paid by a white vs black borrower was often different based, even though all factors other than race were equal.
The CRA was all about uniform credit criteria and did not force FDIC banks to make risky loans.
The financial collapse was primarily due to the practices of two corporations which the government essentially told, "Do what you need to do in order to make as many loans as you can, and we guarantee to protect and back you."
Sorry, that's not libertarian at all.
Assume you are referring to FNMA and FHLMC who lost market share as the bubble inflated because most new loans did not meet their minimum requirements.
They weren't the only cause, but they were the primary cause.
Government banking rules were one of other FACTORS as well, but the practices of Freddie and Fannie was what got the train rolling and drove it off the tracks.
If that were true, FNMA and FHLMC would not have lost substantial market share as the bubble inflated, 2001-2005.
The reason is that despite having control of the white house, the house of reps and having equal control of the senate...............Republicans are still "victims" of the evil liberal "democrat" party bullying and pushing those poor lil ole alpha male republicans around.
50 posts in and no one has yet to blame it all on Barney Frank.
He was 1/435 Representatives in a Republican- controlled House.
I don’t blame Congress, POTUS or a party for what essentially was happening in a mostly unregulated market.
The SEC did however make an indirect contribution when it reduced the net capital requirements for the fab five, Bear Stearns, Lehman,, Goldman, Merrill Lynch and Morgan Stanley which enabled them to substantially increase leverage without setting aside capital.
The blame sits directly on the shoulders of government policies meant to help.
Another example of government overstepping its boundaries.
It was mostly attributed to an absence of regulation and huge mistakes made by independent credit rating agencies and perhaps most importantly, the foolishness of borrowers.
You seem to be ignoring or downplaying the role that derivatives created by hedge funds, insurance companies, and investment bankers, played in the meltdown.
The first derivative market came into being in the mid 1800’s.
Independent credit rating agencies grade securities issued by public and private entities.
They erroneously graded many private issue mortgage derivatives as investment grade and testified before Congress they had computer glitches.
Had they more appropriately graded, the charters of BIG institutional investors would have prevented them from these investments.
Had they not invested, the source of funding sub prime loans would have been very limited.
Had funding for subprime loans been severely limited, originators would not have made the subprime loans they did.
Had subprime loans been minimized, the bubble would not have happened anywhere to the extent it did.
Some regions of the US have historically appreciated better than others.
The first bubble in Arizona began in 1961, when Del Webb introduced the first age restricted active adult community in Sun City in Mariposa Cty. The demand for this kind of housing/ community exceeded the supply and the rest is history.
There is no doubt that greed was a factor, but the GSEs were still the primary factor and cause.
If Freddie and Fannie weren't essentially saying, "Give anyone a loan, no matter how risky, and package them in huge groups, we will buy them from you and your stockholders will cheer the profits.", you wouldn't have had such a collapse.
It was government guaranteed speculation at an incredible level.
And yet F & F lost substantial market share as the bubble inflated, 2001-5, because most new loans did not meet their criteria.
The economic elite pushed these loans on the poor working class. These loans didn't exist until they thought of the idea and sold it to them. Yes, I believe in personal responsibility, but I think it applies to both sides.
Thousands of Ma/ Pa lenders, nothing more than 2 person shops, licensed by their state, made a whole lot of sub prime loans and sold them and serving rights in the forward market to other originators/ institutions who assembled pools of mortgages for resale.
Some of these small shops were owned by those with connections to targeted ethnic communities, Polish, Ukraine, Puerto Rico, México, Pacific Islanders, etc.
A favorite term was the 90/10 product. Ma/ Pa would write a first mortgage for 90% LTV and sell it and serving rights, independent of a second mortgage and those servicing rights for 10% LTV.
A very simple relatively low line of credit took care of Ma/ Pa’s timing differences.
They were in the business of churning and had no obligation for the future performance of the loan.
Because the GSEs were guaranteeing a profit regardless of risk because they were backed by US tax dollars through an unholy alliance with the federal government.
^ silliness
F&F hardly guaranteed anyone a profit.
The Federal Government created both entities. FNMA has been around since 1938 and was one of the tools used by the FDR to eliminate gridlock. If not for FNMA and government intervention you would likely still be required to make a 50% down payment to buy a home and your mortgage would mature in 5 years. You would have the choice to either pay it off ( unlikely) or refinance at current interest rates. The borrower carried the long term rate risk.
FHLMC was created by the federal government in the 70’s to compete with FNMA.
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