Community Reinvestment Act

http://tinyurl.com/cm8px6q
A study by the "respected" National Bureau of Economic Research says the act did lead to riskier lending practices. I put respected in quotes only because I have no idea if the bureau deserves its description in the article.
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On 12/20/2012 9:23 PM, Dean Hoffman > wrote:

Some years ago, I was told I could one of those "Affirmative Action Loans" but I knew better than to get one. I knew I had no backup if something happened to me..... and it did, I became very ill and I would have lost what little I have. O_o
TDD
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wrote:

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They were FORCED to do that by the laws and regulations of the time (The Community Reinvestment Act among them). There were penalties for failing to write enough loans for the "underprivileged" . There were some four or five pieces of legislation that basically required lenders to ignore borrowers' abilities to pay back the loans.
Those "teaser"rates that got so many in trouble were a desperate attempt by banks to comply with regulations and keep the loans flowing, even as the supply of borrowers was drying up.
Towards the very end, banks were even told to ignore any failure of potential borrowers to show any proof of income.

Those loans were largely being bought by Fannie Mae, which was under specific Congressional and presidential orders to purchase anything the banks offered, regardless of the underlying soundness of those loans. Others were being insured by the FHA, which was under similar orders.
--
Tegger

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On 12/21/2012 7:00 AM, Tegger wrote:

That's why I refer to them as "Affirmative Action Loans". Government pushed the banking industry into putting the unqualified into loans they couldn't handle. O_o

I have a longtime friend who was in that industry before it collapsed. O_o
TDD
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On 12/21/2012 8:00 AM, Tegger wrote:

Really? there were plenty of FDIC insured banks (mostly the regional banks)that did not get involved in bad lending just to make a quick.

Mostly the mortgage brokers and big dishonest megabanks who knew they could falsify applications and immediately sell off the very questionable mortgages to be sold off and packaged into complicated investments.

I have a family member who has a very responsible position in a large regional who is FDIC insured and they didn't go near shady mortgages and are healthy and did not need a bailout. Maybe whomever was telling the banks to do all of this forget to mention it to them and the many other similar banks who were honest?

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Not everybody will be reckless. AIG wasn't reckless until Obama forced out Hank Greenberg. It was Greenberg who prudently kept AIG out of the sub- prime business, and it was his successors who were reckless in pursuit of the big buck.
The point is that legislation and regulations created the situation that allowed the reckless to be reckless. How do you make people reckless? By assuring them there will be no risk to their recklessness.
The legislation and regulations that led to the sub-prime crisis were specifically and narrowly focused on just two things: 1) pressuring lenders to make bad loans, and 2) removing from the lenders as much of the perceived risk of those loans.
Dumb ideas both. And both the sort of dumb ideas that only government workers can invent, because it's no skin off their ass if it blows up.
Read what Barney Frank had to say about low-income loans in 2003: <http://www.creators.com/opinion/thomas-sowell/is-barney-frank.html
Excerpt: "To those who warned of the risks in the new policies, Congressman Frank replied in 2003 that critics "exaggerate a threat of safety" and "conjure up the possibility of serious financial losses to the Treasury, which I do not see." Far from being reluctant to promote risky practices, Barney Frank said, "I want to roll the dice a little bit more in this situation."
How safe, sober, and prudent! Well, we all know now how that dice-roll went. But then it wasn't HIS money, was it?
--
Tegger

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On 12/21/2012 10:30 AM, Tegger wrote:

Exactly, we know there are people without a moral compass who will do anything for a buck. Thats why various regulations were put into effect after the great depression and look what happened when they were removed.
I am all for small government etc but I also know about human nature. I don't want government control of everything but we know we need some regulation and appropriate penalties.

As I mentioned why didn't the large regional bank my family works for get into trouble since all banks were so heavily pressured to do stuff?

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There have been countless other boom/bust cycles throughout history, regardless of the "various regulations" that were in effect of the time. Why do you say "exactly" when what what Tegger is referring to is politicians putting MORE regulations into place, that help lead to the housing crisis. Barney Frank wasn't de-regulating anything.
And why would anyone be surprised that you'd have a housing bubble? Govt heavily subsidizes housing, encouraging people to speculate. Then, when it blows up, they are surprised. I guess at least partly that suprise is that they are too stupid to understand economics 101. You make real estate taxes deductible from your income tax. You make mortgage interest deductible too. Even better, you exempt capital gains to the tune of $250K or $500K from any tax at all. You have a FED created by the govt, reporting to the govt, that keeps interests rates very low despite housing prices doubling or tripling in many major areas. Then when it all blows up it a big speculative bubble, the politicians point the finger everywhere but at themselves....

A lot of the banks just sold off the mortgages, passed them on. It was only the HOLDERS of the mortgages and those that held various derivatives bases on them that got screwed. It also depends where institutions were located. A bank doing business in LA for example would have more involvement with CRA loans than one that's mostly is some middle class suburban region.

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On 12/22/2012 9:07 AM, snipped-for-privacy@optonline.net wrote:

Sad that there are no shades of gray possible for you...

But don't change the story. The claim was that the banks were mandated to write bad loans. I mentioned a bank I knew of that was under FDIC that didn't.

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e:
Sad that you leap to conclusions that are unsupported by the facts. Try addressing the facts instead of making assumptions.

as part of CRA? One whole bank? Mighty compelling argument. That surely proves that a lot of other banks were not pressured to make CRA loans, right?
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Tegger wrote:

It wasn't just loans. Subsequent legislation (under Clinton) and various regulations required financial institutions to "serve the formerly 'underserved' communities in which they operated." Failure to score enough points on subsequent surveys invoked penalties.
Drive through the most desparate sections of your town. In a given commercial block you'll see a payday loan outfit, a couple of pawn shops, maybe a bodega. Maybe a hooker or two. And a Bank of America branch! Can any reasonable person believe a branch bank was located on that block out of the desire to "serving the community" (and making a profit) or in hopes of gaining favor with the government?
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<stuff snipped>

Wow! You've got it exactly backwards. The government's intent with the CRA was encourage banks that WERE ALREADY IN BAD AREAS to return some of the money they made from those banks to the community where they made it. Double wow!! Where do you get this stuff?
*BTW - Did you mean "disparate" or "desperate"?
<<The Act instructs the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered>>
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Wrong-way HeyBub strikes again! Why are you so determined to put the blame on the CRA? CRA Derangement Syndrome?
Remember how much banks squawked about new controls on fees recently and made all sorts of threats about penalties to come that never did? Banks in low income areas have far greater revenue from bank fees than banks in high income areas. Banks LIKE being in those areas.
http://www.forbes.com/sites/halahtouryalai/2012/04/26/how-banks-are-getting-richer-off-the-poor /
The Congressional hearings about fees highlighted how a $5 Starbucks turned into hundreds of dollars of fees for one low-income guy. Fees are the banks new bread and butter and they get fat "per account" fee revenue from poor people who can't keep a big enough balance to avoid them.
Both the actual report:
http://www.nber.org/papers/w18609
and the article cited said that CRA was 5% of the total problem. I guess I was generous when I demonstrated once before when you proposed this line of BS that CRA *couldn't* have been responsible for more than 10% of the crash. Fifty five percent of all the bad mortgages were *commercial* and not subject to CRA. The preponderance of the residential mortgages crashes were mostly in quite nice areas in Florida, California and Arizona and not subject to the CRA whatsoever.
You have to use common sense to evaluate hysterical claims. As Bob and others have noted, banks believed any subprime loan they made could be foreclosed and resold for more $ and once rolled up in a CDO, it was someone else's risk and problem. How does Kurt say it: "They thought all trees would grow to the sky." Then the sky fell in.
Banks and lenders like Countrywide didn't make bad loans because the Feds forced them to. They made bad loans because they expected to profit no matter what. They knew if they really screwed up, Bush and Obama would have to bail them out, which they did. That should tell you which is the cart and which is the horse in this scenario. It was a classic free-market failure to regulate a runaway financial train, among many other factors. The CRA was a minnow compared the sharks in the game. Here, read up on the multiple causes of the 2008 crash:
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
2 Causes a.. a.. 2.1 Boom and bust in the housing market b.. 2.2 Homeowner speculation c.. 2.3 High-risk mortgage loans and lending/borrowing practices d.. 2.4 Mortgage fraud e.. 2.5 Securitization practices f.. 2.6 Inaccurate credit ratings g.. 2.7 Governmental policies a.. 2.7.1 Decreased regulation of financial institutions b.. 2.7.2 Policies to promote affordable housing a.. 2.7.2.1 Community Reinvestment Act c.. 2.7.3 State and local governmental programs d.. 2.7.4 Mark-to-Market Accounting Rule h.. 2.8 Role of Fannie Mae and Freddie Mac i.. 2.9 Policies of central banks j.. 2.10 Financial institution debt levels and incentives k.. 2.11 Credit default swaps l.. 2.12 Globalization, technology and the trade deficit m.. 2.13 Boom and collapse of the shadow banking system -- Bobby G.
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Probably from places like your reference:
The Act mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies to determine if the bank offers credit (in a manner consistent with safe and sound operation as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business.
Now I don't know how it works in your area, but I believe the process is you get a charter from a state to become a banking institution in that particular state. You have to meet their requirements. At that point, I believe you can open branches anywhere you please. You don't get a new charter for each branch, do you?
So, if bank XYZ is chartered in NJ, are they not chartered to do business in all communities within that state? In which case, the CRA would apply to make them give out loans anywhere. Also, the banks I've dealt with for mortgages did not limit their loan applications to just local residents. I've gotten mortgages from financial institutions where the nearest branch was 15 miles away.

Because that's where some of the blame clearly rests.

Let's take your number of 10%. That sure sounds like a significant problem to me. For example, in the recent rant about high capacity magazines, you go find 3 cases in 3 decades where the size of the magazine may have made a difference in mass shootings. Then you go off the rails, focusing on that as the problem. But here, you admit that CRA could be 10% of the Great Recession, and when HeyBub talks about it, you get all pissed off.


I'd like to see a reference for that.

Yes, you sure do. See the part about magazines.

Wow, you've discovered human nature.

It wasn't a free-market failure to regulate. The free market never had the chance to regulate. The regulation would have been to allow those companies to go bankrupt. The govt prevented that from happening.
>The

10% is now a minnow? go figure.

Besides CRA, there sure is one hell of a lot of other govt involvement on that list. Yet you pretend that govt is the solution to everything.
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Dean, Hoffman, wrote:

=====================
http://www.youtube.com/watch?v=kNqQx7sjoS8


http://www.youtube.com/watch?v=GkAtUq0OJ68

George Bush:
"We want everybody in America to own their own home. That's what we want." ===================== Those video's show your god-like monkey talking about his "no black/latino left behind" strategy to bring the american dream to minorities - or was that his plan to bring votes to repubicans?
Instead of the american dream, Bush gave you the american nightmare.
He started the war on americans - but for some reason the media kept calling the "war on terror".
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If you want to assign blame, you need to include Coolidge, Hoover, FDR, Johnson, Nixon, Carter, Reagan, and Clinton before getting to Bush and Obama. Like in the movie "Murder on the Orient Express", they ALL did it.
Mind you, little of this was actually /started/ by the presidents, they mostly just signed into law what Congress gave them.
Here's a partial list of legislation and other federal plans deliberately aimed at increasing home ownership by making credit cheaper and easier to get, or by directly subsidizing home ownership: - Own Your Own Home campaign (1920s) - Federal National Mortgage Association (1938) - Fair Housing Act (1968) - Equal Credit Opportunity Act (1974) - Community Reinvestment Act (1977, revised 1992) - American Community Renewal Act (1997) - American Dream Downpayment Assistance Initiative (2003)
Your Congresscritters were working overtime to create the sub-prime mess.
--
Tegger

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The actual article on which the investors.com editorial is based lives behind a paywall at
http://www.nber.org/papers/w18609 But a precis says:
<< . . . in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.>>
Five percent every quarter *when the Feds were looking." Looking at the IBD interpretation of their results is interesting.
First of all, it's an editorial. Instead of talking about actual loans, they talk about "loan commitments" and "pledges." There's a big difference between a pledge and an actual loan although you wouldn't know it from the way the author writes.
Secondly, they claim Democrats say the CRA had "nothing to do" with the subprime crisis. No Democrat I know of believes the CRA had no effect. But most credible sources put it at ten percent or less of the entire problem.
The NBER seems to indicate that the CRA's contribution was much lower - five percent and then only around the times that banks were subjected to compliance inspections. Throughout the editorial are such "alert" words as "housing analysts say." Which analysts? Where?
They do point out the CRA was passed in 1977. There were lots of cooks, both Democrats and Republicans, stirring the CRA pot over the years. Both sides believed and still believe that home ownership is essential to American prosperity. I do too.
The real cause of the crash is pretty simple to understand. Banks made horribly bad loans knowing they could escape the risk by rolling them up with good loans into CDOs. They sold those collateralized debt obligations to investors who couldn't get enough of them, partly because they were wrongly rated AAA.
This was a simple case of adulteration, something that's probably happened since Ackbar cheated Amentop by selling him a barrel of fish with all the rotten ones concealed on the bottom in 2,000 BC.
-- Bobby G.
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Oh please. I have never, ever seen a Dem say that CRA had anything to do with the subprime crisis. There might be one or two somewhere, that you could did up. But the above claims is just silly.

So, what? Ten percent is a whopping big problem. What percent of the mass shooting problem is allegedly attributable to high capacity magazines? Sure ain't 10%. Yet in that case, why it's the biggest thing ever. Nice double standard.


Even more essential to prosperity, something you need before you can even get to home ownership is a robust, growing economy. How are the lib ideas working there? The economy is growing at less than half the rate it should be. Must be time for more govt spending and higher taxes, right?

Except that obviously it wasn't that simple. If it was, then why did so many banks and financial institutions fail? They should not have been holding much of the bad stuff, right?

Uh huh. Only then we didn't have so many regulations, so many regulators, so much overhead that we all pay for. And it still happens anyway. Food for thought.
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