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.
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
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.
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
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?
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:
"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?
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?
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
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
Sad that you leap to conclusions that are unsupported by the
facts. Try addressing the facts instead of making assumptions.
Wow? You have one bank that wasn't pressured to write loans
as part of CRA? One whole bank? Mighty compelling argument.
That surely proves that a lot of other banks were not pressured to
CRA loans, right?
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?
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>>
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.
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:
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:
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.. 220.127.116.11 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
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
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
the chance to regulate. The regulation would have been to allow those
companies to go bankrupt. The govt prevented that from happening.
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.
"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".
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.
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.
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
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.
HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.