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CRA
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CRA |
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Huan Yi Member Ascendant
since 2004-10-12
Posts 6688Waukegan 
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. “Critics claim that government policy encouraged risky lending[6] and the development of the subprime debacle through legislation like the CRA. Economics professor Stan Liebowitz writes that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." The chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that to approve minority applications "lenders have had to stretch the rules a bit."[7] Robert Gordon of the Center for American Progress disagrees, quotes statistics that he claims show "independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts." He faults then-Federal Reserve chair Alan Greenspan for "cheering the subprime boom" in the banking industry.[8] Economics professor Thomas DiLorenzo counters Gordon, stating that independent mortgage companies are "middlemen" between banks, including those regulated by the CRA, and consumers and that in any case the CRA had caused tens of billions in defaults on mortgages by unqualified borrowers.[9] Economist Yaron Brook concluded succinctly, "The Government Did It:" through the stick of the CRA [and] the carrot of Fannie Mae and Freddie Mac, the fed created the mortgage market debacle. [10]” http://en.wikipedia.org/wiki/Community_Reinvestment_Act I didn’t even know about CRA until last week. . |
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Balladeer
Administrator
Member Empyrean
since 1999-06-05
Posts 25505Ft. Lauderdale, Fl USA |
In 1995, as a result of interest from President Bill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These revisions[1] with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.[citation needed] Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. [2] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent. [3] [4] |
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Balladeer
Administrator
Member Empyrean
since 1999-06-05
Posts 25505Ft. Lauderdale, Fl USA |
You got as many replies as I expected, John  |
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Bob K Member Elite
since 2007-11-03
Posts 4208 |
Tell me more about what the CRA is, if you can. It sounds interesting, though I always find economics a bit difficult. I understand that the act was supposed to make credit easier for low income folks to get for mortgages. I heard nothing about predatory loan rates being encouraged, and loans being encouraged to people that would be unable to pay them back. Is somebody suggesting that there was legislation passed for this purpose? Or is it possible that this was another step in the march toward deregulation that's been going on for quite a while now, including during the Clinton years, when I feel that the President didn't stand up against it very well. He should have done better on that stuff. Greenspan was very popular with everybody, Democrats and Republicans alike, and could do no wrong. I hope you're not saying the mood was otherwise at this late date; it was one of the few things both parties agreed on. |
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threadbear Senior Member
since 2008-07-10
Posts 817Indy |
No-one likes to admit it, but minority or lower-income loans default at 3 to 5xs times the rate middle class loans do. The average default rate is 5%. Minority mortage default rates in most cities run 13-19%. Clearly, people are getting loans by being indigent (under $20,000 yr households) in an order to 'balance the housing equation.' Chicago has close to 25% minority default rate, yet somehow 20K earners are still getting home loans there, partially due to the banks voluntary capitulation to C.R.A. and other government housing giveaways. You see, it's not always the rich who benefit from financial transactions. Its you, as the next loanee, who are affected by the higher interest rates and loan rejections; much as it is us, the 401K possessor, who will pay nearly $3,000 per household for this massive bailout. To be fair, a combination of bad mortgage loans AND credit loans that caused this financial debacle (coupled with equity being wiped out by 'reverse mortgages' and the nationalization of our banks (which resulted in the wholesale selling of loans to banks who no longer had a vested interest in a local community where the loan was first obtained.) Oh yes, let's not forget the incredibly high CEO compensations and bonuses, some in excess of $25,000,000 for running their company into the ground. Can anyone say 'caps?' [This message has been edited by threadbear (09-24-2008 12:10 AM).] |
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Huan Yi Member Ascendant
since 2004-10-12
Posts 6688Waukegan |
. "Stan Liebowitz writes that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." Yet for all the financial blood being shed, both on a national and personal level, has anyone heard about this going away? . |
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oceanvu2 Senior Member
since 2007-02-24
Posts 1066Santa Monica, California, USA |
Hi John -- What a great, lucid, post. Most of the time I have great difficulty understanding your briefer posts, but this one I can actually follow. Good Job. Jimbeaux  |
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rwood Member Elite
since 2000-02-29
Posts 3793Tennessee |
Now you know why: "No Credit? Bad Credit? Bankruptcy? No Problem!" was the national catch phrase for most sub-prime lenders. I've not been paying attention since the bail-out, but I doubt it will change. |
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