http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

The GOP blames the victim
This was in the Wall Street Journal

http://online.wsj.com/article/SB122282690823092989.html?mod=rss_The_Tilting_Yard

In fact, 80% of all subprime loans were made by institutions that were not subject to the CRA.
Countrywide for example, was not subject to the CRA.
It failed anyway!!!!

Blaming the CRA is just a convenient scapegoat for the GOP.

Rick

Although CRA has surely driven the writing of more subprime loans, they are not shown to be the majority of loans that are bad. The killer statistic would be : Of the 2% of loans that are currently bad, how many are a) prime, b) sub-prime and c) CRA required. Armed with that information, we might plausibly be able to lay blame.

To me, the real issues are :

1. It was an up market. Banks are more likely to write and profit from subprime mortgages when the housing market is increasing, and they did. They wrote them and they profited handsomely. So much so, that they looked for new ways to increase their There is no suggestion that BoA’s 600B in subprime mortgages was necessitated by the CRA. Some portion of it surely satisfied CRA requirements, but it cannot be claimed that BoA, or any bank, only wrote sub-prime mortgages because they were forced by CRA. We don’t have enough data at our finger tips to know what percentage were driven by CRA, but it is appearantly not refuted that CRA loans outperform other subprime loans.

2. The Fed should never push anything.. to the extent that they should offer advice, it should be only cautionary.

3. The loans were securitized, sold off and then used as collateral for further loans, and was of a poorer quality than advertised.

Allow me to suggest, in the case of #3, that using a risky investment as collateral is not terribly bright. But it is a risk that was taken with open eyes. No one was forced to buy swaps. Furthermore, if you were sold crap as if it were gold, the phrase caveat emptor comes to mind. If you bought them assuming that they were backed by the full faith and credit of the USA, then you didn’t read the contract. My sympathy for people who bought these debts without performing due diligence and then used them to meet collateral requirements is zero. Unfortunately, they will get bailed out by the taxpayers. That is a real scam.

MyCommunity mortgages are typically 100% loan to value, ie. no cash down. No prior credit history is necessary. No minimum credit score req’d if filed with Fannie’s automated underwriting service. Debt to income ratios (total recurring debt payments divided by income) traditionally stood at 36% in the 1990s. With MyCommunity I’ve heard of 65% being allowed. Only available to borrowers below median income in their areas.

Fannie bought these sorts of mortgages, slapped a guarantee on them, and sold them off as AAA mortgage backed securities. If Fannie wasn’t underwriting subprime than I don’t know who was.

There was predatory lending going on, no question about it. There was also a large industry of mortgage brokers adding middleman costs. There is nothing wrong with charging more for a risky loan than a safer one, but when you create deceptive products, such as teaser rates, interest only loans and even the regular ARM loans, you create a time bomb of loans the borrower will never be able to repay. This was done by the banks themselves and they are paying the cost for poor business practices.

A more interesting thought is executive compensation which rewards high return/high risk practices that destroys shareholder equity in the long run, but makes poor decision makers rich.

Excellent article, and heartfel congratulations on your recent honors.

“Second, changes in the structure of the financial industry have resulted in many financial transactions that fell under the CRA umbrella in 1977 having become increasingly the province of nondepositories not subject to CRA, including companies owned by banks or bank holding companies. Holding companies’ nonbank affiliates, for instance, can be included in the CRA assessment of the banking institution at the discretion of the bank but need not be. Most mortgages are now packaged by brokers, and nearly two in three mortgages are originated by nondepositories not covered by the CRA.11 Nonbank institutions, such as payday lenders, check cashers, and remittance agents, are important sources of financial services in low- and moderate-income communities. In some cases, nonbank service providers offer convenience to customers but at prices that have raised concerns (Carr and Schuetz, 2001, and Barr, 2004).”

And furthermore CRA actually deterred risky:

“Specifically, the Traiger & Hinckley LLP study found that:

— CRA Banks were 66 percent less likely than other lenders to
originate a high cost loan;

— The average high cost loan made by CRA Banks was priced 68
basis points lower than the average high cost loan originated
by other lenders;

— CRA Banks were more than twice as likely as other lenders to
hold originated loans in their portfolio; and

— The higher a metropolitan area’s concentration of bank
branches, the lower its foreclosure rate.”

http://www.reuters.com/article/pressRelease/idUS135259+07-Jan-2008+BW20080107

Blaming the fed for easy money I agree with but I think you’re way off base on the CRA.

(Not sure about the BBS code on here)

Has he ever written or spoken out about the CRA? Now would be a time I guess..

Inherent in capitalism, the clearing house of individual action, is boom and bust. Capitalism doesn’t guarantee that everyone will think critically, and when enough people don’t, corrections occur, painful perhaps, but teaching others to act differently.

Major problems come into play when the government endeavors to both “level the playing field” and subsidizing poor allocations. In doing so, it merely increases the amplitude and duration. The good times seem to last longer, and reach higher, but when the inevitable corrections come, they too are much longer, and consequently deeper.

I look at it in terms of one wave (capitalism) itself being carried on a bigger wave. And when the bigger wave hits 0 on the Y-axis and goes negative, the slave wave also hits a down cycle, and as it does, it takes the full blame.

Simply put, capitalism has booms and busts. Booms are great, busts are painful. But left to themselves, they will correct. Government, in its illegitimate efforts to entrench itself into peoples lives can artificially make the good times better, but at a cost. And when that cost comes around, capitalism takes the blame.

It should be the task of libertarians to sell to people the idea that nothing is certain. Risks and rewards abound. There are no guarantees. Attempts to make the government the insurer of last resort just makes things worse in the long run. Trading freedom for security is never good for the individual.

Anyway, great article on CRA. Thanks for the great research and the sharing of the details.

You’ll not get any closer to
the truth about what’s afoot
with GLOBALIZATION and
this looming food crisis than
my below thoughts and links
(copy and sent to friends
and colleagues)):

The Third-Way push of socialism/capitalism to equalize
the world’s economies has caused this looming food
crisis, NOT CAPITALISM.

Socialist/communist leftists have captured capitalism
and enslaved it to EQUAL/FAIR outcomes.

Of course, you have think more deeply to find the truth.

Read and learn the truth:

What we are facing in 2008 is a Third-Way (socialist/
communist/capitalist) conspiracy to equalize the world’s
economies, as preface to installing one-world government;
a plan hatched during the 1940s GATT formulations, which
were socialist/communist, in effect.

Keep in mind that there is no PEAK OIL crisis—only a
decades-long, purposeful cap on searching and drilling and
refining for oil, in order to put the world in crisis-mode.

Using food to produce fuel is part of the conspiracy to
generate food riots, in order to destabilize governments;
and this so-called “war on terror” is also part of the
secret plan, although its primary beneficially is Israel
in the exchange of blood and treasury for oil–as payoff
for protecting Israel from an ever-threatening, encircling
Islamic Arabism.

The secret plan?: to create one-world government under
GLOBAL ECONOMIC SOCIALISM.

This is a conspiracy-driven dismantlement of the West’s
financial underpinnings, for a certain purpose: TO EQUALIZE
GLOBAL ECONOMIES, for future installation of one-world
government.

I’ve provided all the details in my essay, “Planned
Destruction of America” (linked below), which is my report
on Lt. Col. Archibald Roberts’ 1968 booklet: “The Anatomy
of a Revolution”.

Study my essay, then write as if we’re all being led down
a path to hell on Earth by secretive, elite movers and
shakers on the Left and Right (path to hell aka “Third-Way
Global Economic Socialism”). Read and learn and teach:

The EU and the coming North America Union are products of
the 1940s GATT formulations, and very few analysts are
aware of it ((GATT, NAFTA, and CAFTA are socialistic
attempts at equalizing global economies, in order to in-
stall one-world government under THIRD-WAY Global Economic
Socialism)).

My missive to Ron Paul’s staff, regarding my view that
this financial crisis is not by happenstance nor
mismanagement—but BY DESIGN!:

The Honorable Ron Paul is ignorant of an ongoing conspiracy
to topple, financially, the West, in order to equalize
the world’s economies; for building one-world government
under GLOBAL ECONOMIC SOCIALISM. // The conspiracy began
in the 1940s with the GATT formulations. // Ask why
Greenspan had violated his chairmanship duties by advising
prospective home buyers to take out an ARM. // Ask why
Greenspan had sent out fed regulators to warn banks that
they’d be charged with RACISM if they didn’t loosen home
loans for minority, HIGH RISK home buyers. // Ask why
Greenspan recently, TRAITOROUSLY, had advised OPEC oil
producers to de-link from the U.S. dollar. // Greenspan –
the FEDERAL RESERVE – has embarked on a purposeful set of
monetary policies designed to destroy the West’s financial
underpinnings. // Read about the WHO, the HOW, and the WHY
of it in my below article (first one):

Planned Destruction of America
http://planneddestructionofamerica.blogspot.com/

Corporate America: What Went Wrong?
http://corporateamericawhatwentwrong.blogspot.com/

This one helps to confirm efforts to PURPOSELY trash
America’s financial underpinnings:

http://www.321gold.com/editorials/engdahl/engdahl031808.html

P.S.

Oil is payoff for the West’s efforts at providing PROXY
COMBATANTS for Israel–for protecting Israel from expanding,
encircling Islamic Arabism; a Jewish nation-state having
supporters throughout the West willing to destroy the entirety
of Western civilization for Israel’s sake.

P.P.S.

“Because many nations’ agricultural
production will decline under NAFTA
and GATT, in becoming dependent on
the more productive nations’ capacity
to export cheaper product to them,
they’ll become gravely vulnerable to
any of the exporting nations’ food-
production declines, possibly resulting
from bad weather conditions or bad
economies. ‘Free trade’ in food sets up
a looming catastrophe (read my essay,
GATT: Ubiquitous Treason)…Wouldn’t such
worldwide economic interdependence
necessarily set the stage for a worldwide
economic collapse should any one nation
seriously falter? Such a worldwide collapse
would make America’s Great Depression
appear like good times. Why aren’t the
NAFTA and GATT crafters arguing for more
economic independence for nations – for
rugged individualism among nations – rather
than building this One World interdependency
that their brand of ‘free trade’ necessarily
engenders?”

The NAFTA Debacle (1995)
http://naftadebacle1.blogspot.com/

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