2000 Article Predicts Disaster that was the CRA

[Grumpyguy]

Lending to the credit unworthy was a bad idea and a 2000 article predicted that this Clinton initiative would at some point tank the economy:

http://www.city-journal.org/html/10_1_th...ollar.html

And for good measure, the evil Bush administration did try to fix Fannie Mae and Mac way back in 2003, but guess who opposed it? And this even comes from the gospel of the left!

http://query.nytimes.com/gst/fullpage.ht...A9659C8B63&sec=&spon=&pagewanted=print

[rgG]

From the second link September 2003:

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

[Lux Interior]

Winter 2000 Article wrote:

It will take a Republican president to change or abolish CRA, so firmly wedded to it is the Clinton administration and so powerfully does it serve Democratic Party interests.

Too bad they didn't get one. The Democratic domination of the legislative & executive branches for the next 6 years sealed our fate.

[Gutenberg]

What the Community Reinvestment Act did was break the redline that kept people in working-class, and in some cases, middle-class, city neighborhoods from getting mortgages. It broke the stranglehold that slumlords held on these neighborhoods and improved these neighborhoods to the point that people who managed to buy houses in the 1990 could sell them at a profit in the 2000s. Shame on the CRA.

The CRA did not legislate, nor did it dictate, no-doc loans, interest-only loans, mortgage-backed securities, or any of the other nonsense in which the financiers indulged. It did not make them necessary either. It did not dictate that real estate agents and mortgage brokers sell people loans that they knew they would not be able to afford after a year or so. All the CRA did was inform the banks that if they were going to make a boatload of money lending in "good" neighborhoods, they would have to turn some of that profit over to "marginal" neighborhoods and lend there too. It worked a treat. It the financiers had dealt responsibly, we would still be bubbling happily along, albeit with smaller bubbles and lower profit--but the profit would still be coming in.

I know people on both sides of the CRA--community organizers and bankers--and they like the act. It has done a lot of good. If you have a neighborhood near you that used to be marginal but is looking better these days, with paint and renovation and new people moving in, chances are the CRA had a hand in it.

[JoeH]

Gutenberg summed up the CRA better than I could, and has pointed out that it had nothing to do with the loose lending practices. In fact, most of the foreclosures I am hearing about are not ones on lower priced properties, with outstanding mortgages in the $100-150K or lower range. No, they are the higher priced properties where people bought more house than they really could afford, or used it as collateral for another loan when the paper market value went higher. Those foreclosures are on several $100K of loans, and those were not sold to low income persons.

[Black Landlord]

JoeH wrote:
Gutenberg summed up the CRA better than I could, and has pointed out that it had nothing to do with the loose lending practices. In fact, most of the foreclosures I am hearing about are not ones on lower priced properties, with outstanding mortgages in the $100-150K or lower range. No, they are the higher priced properties where people bought more house than they really could afford, or used it as collateral for another loan when the paper market value went higher. Those foreclosures are on several $100K of loans, and those were not sold to low income persons.

Shhhhh . . . we need another conservative 'round here-- the current crew seems to be fighting burnout.

[Seacrest]

JoeH wrote:
Gutenberg summed up the CRA better than I could, and has pointed out that it had nothing to do with the loose lending practices. In fact, most of the foreclosures I am hearing about are not ones on lower priced properties, with outstanding mortgages in the $100-150K or lower range. No, they are the higher priced properties where people bought more house than they really could afford, or used it as collateral for another loan when the paper market value went higher. Those foreclosures are on several $100K of loans, and those were not sold to low income persons.

I disagree (sort of).
This clusterfrak has EVERYTHING to do with loose lending "policies," although I agree not really much to do with the CRA and poor people.

The whole thing was a top-down affair, from Alan Greenspan to the banks to the ratings agencies (somehow everybody seems to have forgotten about these idiots), to the monoline insurers (AIG went bust and they're still around?) to "Flip this House" to the middle class buying McMansions and/or loading up on MEW* debt to pay for everything from boob jobs to boats to his-and-her Harleys, the mortgage brokers who slithered all through the countryside and the urban jungle looking for suckers to get "cash out of their homes" all the way down to the above-mentioned "suckers" who signed papers they didn't understand for money they thought was "free."

Did I leave anybody out?

This problem was caused by our collective greed and aggravated by "all of us," but none of this could or would have happened without the "quant" geniuses on Wall Street, who came up with ingenious ways of "dispersing" risk on every derivative they could imagine while they collected massive amounts of fees on every MBS, CDO, CDS and BS they sold all over the world.

To try to blame this whole affair solely on the least powerful of society is beyond disgusting.




*MEW = mortgage equity withdrawal

[Gutenberg]

Incredibly, Joe, some of those higher priced mortgages WERE sold to lower- and middle-income borrowers. There was an article in the Baltimore Sun about a woman who was being evicted out of her $500-and-something-thousand house after foreclosure. She ran a home day care business. I mean, for crying out loud. After the invention of mortgage-backed securities, the banks and brokers had no interest in offering loans that were sensible--they were offering loans that were huge because their fees were a percentage of the loan.

And yes, any woman who would sign a loan for $500K-plus based on an income of $50K is seriously stupid. She should have known better. But the mortgage brokers DID know better, and I hold them more responsible. What they did borders on fraud.

EVERY first-time homebuyer should have to take a class on mortgages, budgeting, and affordability. They're available in just about every town (made possible by donations from banks trying to meet their CRA requirements!)

Edit: I did not see Seacrest's post till after I posted the above and Seacrest is absolutely correct. There is plenty of blame to go around.

Here's my prediction: the next "financial innovation" to blow up in the faces of regular Joes is the reverse mortgage. They are effective for the borrower in very very very rare circumstances, but the industry is trying to sell them widely. Shame on Robert Wagner for being the shill.

[Black Landlord]

Seacrest wrote:
The whole thing was a top-down affair, from Alan Greenspan to the banks to the ratings agencies (somehow everybody seems to have forgotten about these idiots), to the monoline insurers (AIG went bust and they're still around?) to "Flip this House" to the middle class buying McMansions and/or loading up on MEW* debt to pay for everything from boob jobs to boats to his-and-her Harleys, the mortgage brokers who slithered all through the countryside and the urban jungle looking for suckers to get "cash out of their homes" all the way down to the above-mentioned "suckers" who signed papers they didn't understand for money they thought was "free."

Did I leave anybody out?

Nope. :bomb:

[mrbigstuff]

no-doc loans!!!! say it three times and if you still don't believe it then you have at least half of a brain in your head.

imagine applying for a loan on "stated income" - you got it! whatever you state is right!