It Wasn't the Community Reinvestment Act

This needs to be debunked again:

The New Talking Points, Washington Monthly: For about a week now, Republicans have been looking for a way to blame the crisis on Wall Street on Democrats. The search hasn't gone well...

But conservatives kept on trying. In fact, the right seems to have finally come up with a new line: Democrats forced banks to give mortgages to low-income minorities, those low-income minorities couldn't keep up with their mortgage payments, and the banks struggled as a result. Voila! Blame the Dems!

Fox News' Neil Cavuto helped get the ball rolling. Media Matters reported that Cavuto conflated giving home mortgages to minorities with risky lending practices...

The National Review is on board with a similar line of thinking, blaming the Community Reinvestment Act for much of the crisis: "The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama's fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands -- which are political demands -- have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime."

All of this seems rather silly on its face, but thankfully, Matt Yglesias went to the trouble of setting the record straight.

For one thing, the timeline is ludicrous. The Community Reinvestment Act was passed in 1977. Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-"redlining" enforcement come into play, perhaps a result of Dubya's legendarily close relationship with ACORN? Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later? It doesn't even come close to making sense.

Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here. The problems have to do with what was done with the loans after they were packaged, sold and used to make leveraged plays.

Sorry, conservatives, you'll have to keep looking for a way to blame Democrats for this mess. Good luck with that.

See also: Did Liberals Cause the Sub-Prime Crisis?, by Robert Gordon, and Ezra Klein:

As Robert Gordon shows,... this is crap. First, there's the timing. CRA came in 1977. The crisis came in 2007. Indeed, by 2004, the Bush administration had weakened the CRA -- and after that (though not, presumably, because of it), bubble lending really took off. Further, CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms. Which basically leaves a stake in the heart of this particular theory. Indeed, until now, some conservatives have been moaning that no one is talking about the CRA part because it's so racially charged. Poppycock. It's just a false charge...

Comments

[anne]

"Democrats forced banks to give mortgages to low-income minorities, those low-income minorities couldn't keep up with their mortgage payments, and the banks struggled as a result. Voila! Blame the Dems!"

This is perniciously false; since at least 1994 artificially high cost mortgages have been sold to African American and Latino households in disproportionate numbers, many of the households would have qualified for low cost mortgages. The discriminatory problem was studied and reported on and ignored, and the resulting strains on households that had to result when real estate prices began to level off or the economy weakened were further ignored.

[anne]

The ignoring of the stress in African American and Latino neighborhoods, as real estate prices began to level and employment gradually weakened, should be much complained about, especially since the ignoring by Democratic Presidential candidates other than Hillary Clinton and Denis Kucinich was counter to what should be taken as legitimate political interest.

However, the matter was that African American and Latino households were repeatedly and needlessly taken advantage of by unethical mortgage bankers acting wholly self-interestedly.

[anne]

"The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama's fellow community organizers would like."

Completely beyond dignity or shame. The need always being to insure that African American and Latino and older households where the mortgage discrimination occurred not be discriminated against. I have complained about too little active interest by most Presidential candidates rather than too much, having nothing to do with community advocates who only sought fairness.

[Worker]

If you substituted "politicians" for liberals, there would be a good case to be made.

[anne]

"If you substituted 'politicians' for liberals, there would be a good case to be made."

No; the driving force behind artificially high cost mortgages was beyond politics; what blame there needs to be beyond the practices of mortgage bankers being for the ignoring of the problem that was several times made public politically.

[anne]

Jesse Jackson especially sought to bring attention to the problem, but with sadly and possibly surprisingly little success.

[evagrius]

Well it had better be stated very loudly and repeatedly.

Blaming minorities will, I think, become a very big talking point.

Everyone knows that bankers and financiers are extremely honest and upright people who cannot, cannot, possibly be responsible for this mess.

This will be stated over and over again.

[ken melvin]

Couple years ago, I posted a story on AB and told here about an illegal, illiterate Latino family being sold a house with payments four time what they could even hope to afford. I wrote the SFChron and emailed all the local TV including Spanish language, and got no response from any of them.

[ken melvin]

Those who were sold these houses via sub prime loans are the victims. The winners were: the sellers who sold at grossly inflated profits and the skimmers.

[inthewoods]

Was Countrywide covered by CRA in any form?

[NotaSheep]

Maybe when you have finished with your liberal fake anger you might look at Wikipedia's impartial report - "The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.

[cas127]

"Beyond that, the mere existence of "subprime" loans -- i.e., mortgages given to less-creditworthy individuals at higher interest rates -- isn't the problem here."

Really?! - The leverage doomed the investment banks but it *is* the fact that 2002-2007 borrowers aren't paying that is the *root* cause.

Crappy underwriting standards are a major cause as well - but to write non-paying borrowers out of the equation is simply idiotic.

[Tyler]

Keep in mind, the deregulations we are all talking about specifically allowed these subprime lenders to NOT BE REGULATED BY THE CRA! That was their primary purpose, lenders did not want the oversight of the CRA, and it was only after lenders were able to go around the CRA that subprime lending exploded.

[anne]

"Maybe when you have finished with your liberal fake anger...."

Notice carefully the language.

The point is that from at least 1994 on, African American and Latino and older households were subject to artificially high cost mortgages even though the households would have fairly qualified for low cost mortgages. There was continually, methodically discrimination in the mortgage market extending for years. Discrimination that was studied and reported on from at least 1999 in the New York Times.

[anne]

The gains to mortgages bankers for selling the highest cost products which could then be packaged and sold away in turn were a continual inducement to discriminate against households least knowing and historically least able to defend themselves. The excessive cost mortgage market was purposefully discriminatory.

[anne]

Too late in the emerging of a mortgage-neighborhood crisis in African American and Latino communities, my complaint was that only Clinton and Kucinich among the Presidential candidates were willing to work on legislation to forestall a worsening. This was a prelude to a general worsening to come, however.

[Ninja Zombie]

"Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later? It doesn't even come close to making sense. "

This is simply dishonest. When people argue that the CRA caused this, they are referring to Clinton's 1995 revisions to the CRA. These revisions allowed mortgage backed securities to contain subprime loans, and the first such securities were actually issued in 1997.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Clinton_Administration_Changes_of_1995

I'm certainly not going to place all the blame on the *CRA* (and it's 1995 or 2005 revisions), but it is quite dishonest not to even mention them.

[Mark]

I ran into an acquaintence from a conservative think tank last week. He had obviously received the talking points: the meltdown is yet another unintended negative consequence of misguided social policy. Historians will be arguing for a long time about what proportion of the ultimate damages is attributable to various sources. But this simple narrative has enough causal face value and will be repeated so often that it will be hungrily accepted by those predisposed to believe.

[Uhm, that's kind of dumb]

Sorry Ninja, but that's a stupid argument. All that change did is allow the loans to be repackaged in a particular way, it didn't change the net risk. If anything, bundling the loans would decrease risk anyway, there's no way that bundling high risk loans with lower risk loans wouls somehow increase the overall level of risk. Even if you try to say that it then led to a bunch of new loans, the data isn't there to support that they could have casued the crisis - it's just too small a peice (middle class white folks took out far, far more risky loans - take a look at your neighbor's credit some day, on average it's pretty bad).

It's just a plain, dumb argument put out by those who want to blame minorities for our problems

Yeah, right, black people caused this crisis, not those upstanding white folks in fancy cars and fancy shoes. That's what is being said here, make no mistake about it, and it's a load of hidden racist crap.

[stick]

Wow! I'm a regular reader and this is the first time I've come across such blatant trolling on this site! The red meat eaters are out and about on this one!

Keep reading NotaSheep and Ninja.... keep reading....

[Cygnus Georgia]

First, sub-prime has ALWAYS existed at banks. You could always get a loan at a higher interest rate if your credit was not perfect. Think of a doctor who had to file for bankruptcy a few years ago, but had plenty of current cash flow. And all of the exotic mortgages were designed for people like commissioned salesmen (low doc loans) or people with large amounts invested in the markets (zero amortization loans), not poor people.

Second, the 1995 CRA changes allowed banks to securitize CRA loans and trade them to each other to accumulate "CRA credits" which counted towards meeting their requirements. The first CRA loans were securitized in 1997. But by 1995, 30% of all sub-prime loans were ALREADY securitized well before the CRA changes. (This is another republican talking point I've heard elsewhere.) CRA securities also contain a mix of credit qualities, and aren't necessarily all sub-prime. They're just loans to people with either lower incomes, or from certain lower income neighborhoods, regardless of the credit or loan quality. So I'd expect CRA securities to actually be better performing than pure sub-prime plays.

Third, with the reporting required by the CRA, there is a correlation between race and higher interest rate loans, but the information provided to the government is not sufficient to determine if that is cause or correlation. Specifically, the information provided to the government does not provide information on credit/loan quality. Tanta over on Calculated Risk did a pretty thorough explanation of what you could, and couldn't, extract from that data. There's anecdotes of racial discrimination, but no hard evidence like what triggered the CRA to be passed in the 1970's.

[Ninja Zombie]

Some Race Baiter: "It's just a plain, dumb argument put out by those who want to blame minorities for our problems"

Try to follow the conversation.

Original post: "overzealous enforcement back in the late 1970s ...real estate blowout...30 years later? It doesn't even come close to making sense."

Me: "CRA was modified in 1995. It's dishonest not to mention that"

You: "...it's a load of hidden racist crap."

If you want to argue that the 1995 changes didn't cause the current problem (in whole or in part), then make that argument. It's dishonest to ignore the 1995 changes, however.

Your accusations of racism are ridiculous. Clinton and the other politicians who pushed the 1995 changes are mostly white. Those are the ones I would blame if I was, in fact, blaming the CRA for all of our current problems (try reading my post to the end).

But I suppose it is easier to demonize your political opponents with accusations of racism than actually address their arguments, right?

[ilsm]

Ninja Zombie,

What were those changes in 1995? Made under whom running the congress?

Did it have to do with laying off the federal work force too?

[Yes, it it racist]

No, Ninja, it's up to those making the racist charge to support their argument. And that requires a hell of a lot more than pointing to a change more than a decade before the crisis that happens to involve Democrats and blacks (wonder why they had to mention community oragnizers, hmmm, no race connection there...). That's just silly. As I said, it happened more than a decade ago, far before the crisis, and this is in lightening fast financial markets.

You ought to be ashamed of yourself for targeting blacks. They didn't do it, but you want exploit prejudices about them. Pretty shameful. And as I said, just plain stupid.

[ken melvin]

Childish, too.

[ilsm]

Bait and switch. The con artists want to raise the ire of bigots and blame the underserved for their scam that went bust.

The CRA was another area for a quick buck and more phoeny paper for MBSin.

Here is what wiki says:

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]"

Nothing about serving underserved community, just making a lot of quick money.

What depth for Fox and National Review?

[Common Sense]

All of this seems rather silly on its face, but thankfully, Matt Yglesias went to the trouble of setting the record straight.

For one thing, the timeline is ludicrous. The Community Reinvestment Act was passed in 1977. Are we supposed to believe that CRA was working smoothly throughout the Carter, Reagan, Bush I, and Clinton years and then only under Bush II did overzealous anti-"redlining" enforcement come into play, perhaps a result of Dubya's legendarily close relationship with ACORN? Or maybe overzealous enforcement back in the late 1970s is somehow responsible for a real estate blowout that only materialized 30 years later?

This is a poor arguement. Excessive monetary policy created a housing boom. If more people were getting loans you could bet more concerns over redlining by banks would be present.

Especially, when house prices are going up and the only people who could aford loans by putting down 20%, had income, other savings and the prospect of being bailed out by parents were not the same demographic composition of the people who have their noses under the water now.

[ken melvin]

I wait to hear the trolls talk about the loss of equity, transfer of wealth, ...

[Bort]

$700 Billion Dollar Bailout Good For Economy

WASHINGTON (AP) -- It's the largest government bailout in U.S. history and two days after it was introduced to the Americans paying for it, the proposal is still largely a mystery.

Among the unanswered questions: How will the government mop up the bad mortgage debt on banks' books, who will run the process and how much will it cost?

ADVERTISEMENT
Key elements of the plan remain in flux as behind closed doors Democrats demand modifications that would provide more help for ordinary Americans in return for bailing out the country's financial giants.

[Ninja Zombie]

Race baiter: "No, Ninja, it's up to those making the racist charge to support their argument."

I'm just curious, anonymous racial whiner. Are you also one of the people who thinks McCain is sending secret racist messages, i.e. "Obama is a celebrity" is code for "Obama is the antichrist"? Or perhaps "Obama is arrogant" is covertly racist, unlike "Kerry is arrogant" and "Gore is arrogant"?

Then again, playing the race card is easier than explaining why the bill that legalized subprime mortgage backed securities did not play a role in the subprime crisis.

"As I said, it happened more than a decade ago, far before the crisis, and this is in lightening fast financial markets."

There is more to wall street than high frequency trading. According to wikipedia, the CRA changes took effect in 1995, but the first MBS's based on subprime loans were issued in 1997. Lightning fast? Get a clue.

Do you have anything else besides specious arguments and the race card?

[ken melvin]

Ninja - the first lie is always to oneself.

[booboo cumbers]

Here is a study that suggests participation in the CRA program actually reduced risk of foreclosure.

http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

Recap;

* CRA loans constituted only 23% of all loans and 9.2% of high-cost loans in CRA markets.
* CRA loans were twice as likely to be retained in the originating bank’s portfolio than loans made by other institutions.
* CRA loans were less likely to be foreclosed upon than other loans.

[You dealt it, it's yours to pick up]

I'm not playing the race card, I'm asking you idiots to pick it up.

It's pretty funny that you don't even interpret "lightening fast" correctly (and that's your big point too!)

Look, you cite two dates, that's it. Your argument is stupid. It just doesn't fit the data.

And yes, it's a racist argument. [And really, for someone who calls themself ninja to try to make a big deal about anonymous, how stupid are you? I was hoping it was just the one argument.]

[Jon H]

cas127 wrote: "The leverage doomed the investment banks but it *is* the fact that 2002-2007 borrowers aren't paying that is the *root* cause."

Just because the loan is subprime, it doesn't mean the buyers were "poor". They may only have lacked the income for the house.

Real estate speculators and flippers certainly are a part of the problem, and certainly aren't CRA beneficiaries.

Subprimes were often used because they were EASY, and CHEAP, and the borrowers expected to be able to get out of the house or refinance before the nasty subprime loan terms bit them in the ass.

Being 'poor' in any sense really was beside the point. The subprime lenders would give ridiculously cheap mortgages to anyone, even if they didn't require one.

The whole business was to generate mortgages for bundling and sale, as fast as possible, by offering the most attractive terms possible. To the extent that genuinely poor people were given mortgages, it's not because CRA forced anyone to write the mortgage. The brokers didn't care if the mortgages were paid back, because that's a long term issue and wouldn't arise until long after the loan was sold to someone else.

If you think CRA was the problem, you haven't grasped this. The people taking out the mortgages played a role in the process akin to tuna fish being harvested at sea in vast indiscriminate nets.

[Jon H]

Anyone want to argue that all the Southern California foreclosures happened in poor neighborhoods, including all the new-development foreclosures?

[ken melvin]

In SoCal they sold $150k tract homes for $450k even $600k.

[prostratedragon]

Thank you, Tyler. One thing some people will have to answer for at the final call is their claim that "it was because of the CRA" when in fact their entire business model was predicated on not being regulated in this way.

However, at least one of the biggest mortgage high-flyers just loved the CRA:

Was Countrywide covered by CRA in any form?

I'm not sure, frankly; it can be amazingly hard to answer the simplest questions about CFC. But I do know that they made a fine business out of selling CRA-eligible loans to needy institutions that were. As a brief explanation, CRA required banks to do a certain amount of basic business within the neighborhood where they had offices. As their branch based expanded in the mid 90s or later, Countrywide apparently found themselves with a surplus of such loans. Thus was born a trading desk in CRA loans, Countrywide CRA Program, a device whereby one CRA-eligible loan could be made to serve two noble purposes:

A banker having unmet CRA obligations could just call his friend Angelo and find one, or more likely, a pool of loans meeting his needs, in exchange for which CFC got mo' money to lend; Muolo and Padilla, who seem to know Mr. Mozilo rather well, claim that the 90s were a period when he was very aggressively seeking market share (Chain of Blame, pp. 115–116).

But I guess the likes of Neil Cavuto neither know nor care how things actually worked. That would get in the way of their race-baiting.

[Steve W in Ford]

This argument is like the guy with bald tires who after losing a tire and having an accident says, "it couldn't be my tires, the other three are OK"

The problem was the systemic risk forced upon the WHOLE system by the left requiring lenders to make poor quality housing loans.

This caused problems within traditional banking and through securitization these govt backed loans (Freddie and Fannie) spread throughout the world financial system.
There was no one cause but rather many threads that all lead back to the Democrats pushing for more "community investment" and this leading to credit quality deterioration across many lenders.
I'm sure the leading Democrats who pushed these policies using their power and control over lenders did not foresee the consequences, but isn't that the whole point? Allowing social policy to encroach into what should be purely credit quality decisions is eventually a recipe for disaster.

[Brent]

BobH writes:
The people taking out the mortgages played a role in the process akin to tuna fish being harvested at sea in vast indiscriminate nets.

I don't blame CRA. That said, it sounds like you are obsolving home owners, of all incomes, of responsibility for taking out loans they can't repay. Folks who bit off more than they can chew must not be let off the hook, no matter how crooked the lender may have been.

A deficit of personal responsibility permeates American culture and it has grave consequences.

[epar]

I'm in a commercial real estate department at a commercial bank and we make low income housing tax credit investments.
Maybe things are different for single-family lending, but I can tell you that getting CRA credit is only marginally important in the overall decision to make the investment. Sometimes we deem CRA consideration necessary, but its never close to sufficient.

So from my perspective, the notion that "forcing" banks to lend to their branch neighborhoods played any significant part in this is laughable. Plus, even if it were true, no one forced all the non-FDIC regulated mortgage banks and investment banks to engage in securitization, nor for them to create a slew of derivatives based on said securities.

[anne]

Epar:

Sometimes we deem CRA consideration necessary, but its never close to sufficient.

So from my perspective, the notion that "forcing" banks to lend to their branch neighborhoods played any significant part in this is laughable. Plus, even if it were true, no one forced all the non-FDIC regulated mortgage banks and investment banks to engage in securitization, nor for them to create a slew of derivatives based on said securities.

[Thank you; I am told the same by a long-time real estate attorney in Seattle.]

[Icarus]

It seems like no one involved, in all areas of our housing mess, took the time to look 3-5 years ahead. (other than those who refrained from these mortgages).

Perhaps this in the nature of bubbles.

The buyer signed anything to get them into a home they realistically couldn't afford. The mortgage company signed up anyone they could, regardless of credit worthiness, simply to make money on the transaction. The banks accepted these specious applications, as their books looked good for a few minutes, and boards/c level execs love that. The market even accepted it, all along focused on their quarterly returns.

The bubble was self reinforcing, as the illusion of having more wealth (connected to housing) allowed for more spending, igniting more growth.

What a crash. I just wish everyone involved could lose, and everyone who refrained from getting into this house-of-cards game could profit.

That SoCal home which is bank owned now, has to come back to a 'fair' market value, which I suspect involves another 30-40% drop in price.

The CRA is not the issue...ignorant borrowing/lending is.

[Blissex]

«In SoCal they sold $150k tract homes for $450k even $600k.»

And that is the really big deal -- *prime*, white, blue eyed, blond haired borrowers being deeply underwater. Subprime, whether poor whites or black or brown is a small part of the story.

As to the CRA and lending to minorities the Census Bureau has extensive data, even if a bit old (2005):

http://www.census.gov/hhes/www/housing/ahs/ahs05/ahs05.html
http://www.census.gov/hhes/www/housing/ahs/05dtchrt/05cdtchrt/tab5-15.html

According to the data, in 2005 there were roughly 4m mortgages to blacks, with a median $100k of $67k, and 3.1m of these were for less than 80% of the value of the home. Also 4m mortgages to hispanics, with a median outstanding of $100k, and 3m for less than 80% of home value.

So far the Fed has lent to banks/GSEs/... around $800 billion or so, or about $100k (average) per every black or hispanic mortgagee... I can see the CRA has been a big problem indeed :-). All those black strapping young bucks or hispanic welfare queen mortgagees must have bought lots of Cadillacs and t-bone steaks with all that money :-).

Or perhaps it was mostly blond blue eyed prime borrowers who borrowed $400k to buy $200k homes hoping to resell them for $600k, and their lenders who "facilitated" this get-rich-quick scheme with fraudulent mortgage security ratings.

As to that I am often greatly amused by this sarcastic site about Silicon Valley valuation insanity (and Silicon Valley is not exactly a CRA area): http://www.burbed.com/

[Marshall]

What ever happened to personal responsibility. Every american out there (liberal, conservative, white, black, latino, business man, poor person, etc....) should be asking these questions rather than pointing blame--What did I do to contribute to this mess? and What can I do to help the situation.

[Jim]

I blame the crisis on HGTV.

[softwareNerd]

Here's a very well-written article from eight years ago, that gives some insight into the players in the CRA mess.

[Sean]

Hi,

I'm your typical middle class working stiff trying to understand the origins of this mess. Here are some facts from my experience, followed by a question:

Spring 1997 - bought a condo for $72k

Summer 1999 - tried to sell condo, couldn't even get purchase price

Feb. 2003 - sold condo for $100k

So, as of the summer of 1999, the housing market was pretty poor. Somewhere between then and early 2003, the housing bubble began. My question is WHY? What prompted the "turnaround" in the housing market? It's obvious that pure and simple greed took the bubble to new heights, but what started it in the first place? Anyone? If you want to argue it was due the changes to the CRA made in 1995, why did they take so long to have an impact?

Thanks in advance.

Sean

[Benjamin]

I like how this article mentions that the CRA has been around since 1977 but doesn't mention the changes made in 1995 that pertain to mortgage loans. I'm sorry, but it is pretty easy to blame the Democrats and the Republicans that voted in support of the CRA and its modifications in recent years. But no, Republicans can't point fingers at the Democrats alone.

[Erick]

Perhaps what bothers me most about the comments to this article and the sorrounding debate is the notion that the people in general, or minorities in particular, are too stupid to be responsible for themselves. That big brother must look after us to ensure that we are not cheated - because we are too stupid to enter into a private contract ourselves.
When I saw the title of the article, I had hopes that it would enlighten. But it only described and then killed a paper tiger. Too bad the author didn't take the time to trully understand and properly present the opposing opinion. Then he misapplied what appear to be hastily gathered facts without going a level deeper, as should be expected of a journalist.

[anne]

Knowing anything about the history of housing discrimination, would immediately show just how much protection is needed against abuse, even say stupid me.

[It wasnt Me]

I remember buying my first home in 1992. $78,000 5% down and it was 8% fixed 30. I was making 28-35K a year. I had to qualify for an FHA loan, and the builder's lender did not provide any other type of loan. No down payment assistance program, no subprime loan. Under that period's loan underwriting rules I couldn't afford anything more. My second home in 1994 (sold the first) conventional. My parents gave me a small gift of 3k so I can put 10% downpayment. The lender asked me to provide a gift letter and the gift could not be more than 3% of the downpayment. The intererst rate was 30 year fixed at 7%. Why I didn't buy a house beyond the 36% debt to income ratio because underwriters didn't allow it. The lender said no. I also bought a rental property that required 10% downpayment and received a 8% loan. No doc investor loans wer 10% +. So you can guess in the 1990's there was very little flipping done by 25 year olds on half a million dollar homes. Real investors then were buying houses with large downpayments or buying low priced homes. What do we get in todays crisis? People with 80/20 loans in order to avoid PMI. NINJA loans: No Income No Job No Assets loans that had variable rates. Mortgage Brokers/Lenders that gave loans in order to make 3K to 6K in origination fees. Rinse and repeat and make money off a spread due to low Fed Rates. I knew the party was coming to an end when TLC and HGTV had programs on flipping houses. Interest rates went up and pop. I blame the gatekeepers (mortgage brokers) that were like crack dealers who didn't care for their customers. I blame investment bank industry that didn't put any controls. I blame the thousand of homeowners that wanted to get the american dream instantly without investing that time. Now I drive around my community and see half built subdivisions where trees used to stand. I am mad and wish they don't get the money. The funniest thing, CRA was a stick for approving mergers. Now they are merging because of this mess with no regulatory review.

[suue]

Apparently, Freddie Mac is a racist too.

"A September 1999 study by Freddie Mac, for instance, confirmed what previous Federal Reserve and Federal Deposit Insurance Corporation studies had found: that African-Americans have disproportionate levels of credit problems, which explains why they have a harder time qualifying for mortgage money. As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000."

Hey, I didn't make that up.

Poor credit=high risk=high interest. This is not only a factoid for home loans, but ALL types of loans. That is why if your credit score is low you pay more for car loans, furniture loans, credit card loans, you name it.

BTW, CRA institutions can underwrite loans, which means they approve the loan, not the bank. Please read: http://www.city-journal.org/html/10_1_the_trillion_dollar.html

It's an article from 2000. It's on the money.

[suu]

I don't believe the CRA is to blame for all our woes; there's enuf blame to go around.

But you have to admit, purchasing a home beyond your means, using interest-only, no money down, high interest, variable w/ a balloon, complicated by less than stellar credit and no savings doesn't seem like a particularly GOOD idea, does it?

No where does it say in either the Declaration of Independence or the Constitution that you have an inalienable right to own a home.

[anne]

"As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000."

Vile, vile, vile, vile, vile lying.

[anne]

"As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000."

This is a lie, a lie for the sake of being racially demeaning, a lie beyond all shame.

[Patricia Shannon]

Anne,

I don't know anything about these statistics. I would guess Afro-Americans may be more likely to have periods of unemployment, because of discrimination. They may be less likely to have relatives that can help them financially when they need it. If the results (about relative rates of loan defaults are true, reporting them isn't racist, per se. The results may very well be caused by recent and past racism. The results might be used by racists to justify their evilness. But you can't come up with remedies for a problem you don't admit to.

[Patricia Shannon]

Anne,

I don't know whether those results are lies or not. Looking briefly at the web site referenced doesn't give me great confidence in it. But I'm wondering what you based your claim of lies on. Do you know the true statistics? Did you look at the web site and decide it wasn't trustworthy?

[uhoh]

http://www.sourcewatch.org/index.php?title=Manhattan_Institute_for_Policy_Research

http://en.wikipedia.org/wiki/Manhattan_Institute_for_Policy_Research
Funding sources

The Manhattan Institute received $19,470,416 in grants from 1985-2005, from foundations such as the Koch Family Foundations, the John M. Olin Foundation, Inc., the Lynde and Harry Bradley Foundation, the Scaife Foundations, and the Smith Richardson Foundation. [10] The Manhattan Institute does not disclose its corporate funding, but the Capital Research Center listed its contributors as Bristol-Myers Squibb, Exxon Mobil, Chase Manhattan, Cigna, Sprint, Reliant Energy, Lincoln Financial Group Foundation, and Merill Lynch. [11]

http://www.afro-netizen.com/public_policy/index.html

New research by the National Community Reinvestment Coalition found blacks in upper- to middle-income neighborhoods were more than twice as likely than whites in similar neighborhoods to have high-cost subprime mortgages.

In Prince George’s, housing counselors began complaining as early as 2005 about a proliferation of subprime loans. Roughly 43 percent of the county’s homeowners who refinanced three years ago wound up with a high-cost subprime loan, compared to 24 percent of homeowners nationwide, The Washington Post reported last year — using an analysis of Federal Reserve data. About 43 percent of new homeowners also took out the higher-cost subprime loans, compared to 20 percent of buyers nationwide. Yet credit scores in Prince George’s rank higher than the state and national averages.

While it hasn’t received much attention during the housing crisis, places like Prince George’s County were targeted aggressively by lenders. These lenders heavily advertised loans on black radio stations and other minority media outlets and used unconventional methods like selling these loans door-to-door, housing advocates and residents said. This marketing continues unabated, despite the downturn.

Florence Thomas, a single mother from Upper Marlboro, Md., who had to turn in July to the Neighborhood Assistance Corp. of America, a housing-advocacy group, for help in saving her home, said she tells lenders she’s unemployed and they still want to sell her loans and foreclosure help. “They call three for four times a day, and they leave something in my mailbox almost every day,” she said. “Sometimes I end up talking to them, because they say, ‘Florence, how are you?’ and I answer before I realize who they are. They’ve called on my cell phone. It just doesn’t stop.”

This kind of marketing goes far beyond the selling of loans and foreclosure assistance in upscale white neighborhoods, said Gregory Squires, a George Washington University sociology professor who has studied redlining. “This is clearly disproportionately a minority problem,” he said. “And it’s striking that despite all the news about this problem, we still see people going out and using these high-pressure and predatory tactics.”

[John]

Until a total revamping or removal of CRA, expect the economy to continue moving down. Thus the effect of applied
socialism to this degree. You the contributors are guilty of
hurting your neighbor and will pay the price.

[Ralph Hickok]

I don't know what it's like in the rest of the country, but here in Massachusetts the default rate on mortages issued under CRA is about 1.8%, while the overall mortgage default rate is about 5%.

[anne]

Ralph Hickok:

I don't know what it's like in the rest of the country, but here in Massachusetts the default rate on mortgages issued under CRA is about 1.8%, while the overall mortgage default rate is about 5%.

[Thank you, and please set down a reference when possible.]

[anne]

UhOh:

http://www.afro-netizen.com/2008/09/fraud-worsens-f.html

September 8, 2008

Fraud Worsens Foreclosure Crisis: Scams to Stave Off Foreclosures Victimize Home Owners Again
By Mary Kane

That Prince George’s should wind up at the top for foreclosures, and the resulting scams, is particularly troubling to many. At the start of the housing crisis, subprime loans were seen as a problem largely for low-income and minority communities. But as the crisis continues, there’s increasing evidence that for minorities, the higher up the income ladder, the worse it gets — with racial differences in lending more pronounced as income increases. New research by the National Community Reinvestment Coalition found blacks in upper- to middle-income neighborhoods were more than twice as likely than whites in similar neighborhoods to have high-cost subprime mortgages....

[anne]

http://washingtonindependent.com/37/fraud-worsens-foreclosure-crisis

August 21, 2008

Fraud Worsens Foreclosure Crisis: Scams to Stave Off Foreclosures Victimize Home Owners Again
By Mary Kane

[Original date and source.]

[Doris]

I've been a California realtor since 1989. When working with buyers they needed to supply their lenders with three (3) months of bank statements showing that they had enough money to purchase a home, they also needed to have enough money in the bank to create a 3 month reserve after all escrow accts. were paid. Somewhere in the early 90's a ruling came down that we no longer could require this 3 month money trail on the hispanic population because (everone knew?) they typically didn't use banks...they kept their money under their mattresses. From that time on we had accept their word that they had the money needed to complete their home purchase....this was called...legally....matress money. So, now you can come to your own conclusion on what went wrong with all of these loans.

[anne]

"Somewhere in the early 90's a ruling came down that we no longer could require this 3 month money trail on the Hispanic population because (everyone knew?) they typically didn't use banks...they kept their money under their mattresses."

Then, there should be a reference, there should be an article, say, in the Los Angeles Times or San Francisco Chronicle about this. Please do supply a reference, since I do not believe there was ever any such "ruling" unless an unscrupulous company ruled as such in an arbitrary fashion.

[Watching from Oz]

I think the big mistake here is everyone seems to think CRA required sub-prime lending. It required banks to make efforts to improve the community around them and not violate other Acts such as Fair Trading, Truth in Lending. The bank did not have to lend money if the lending was not safe and sound.

Most lending requires collateral. But that makes it hard for someone who's starting out with nothing. The act allowed banks to make some loans based on character and ability to repay. But the volume of loans needed to score points under CRA was a pretty small % of the bank's entire loan portfolio, and certainly not enough to collapse the bank.

The crisis we are experiencing is due to making loans without considering character and ability to repay, the opposite of the criteria required for a CRA loan. CRA loans are not the sub-prime loans that caused this collapse.

And only FDIC depository banks are covered by CRA. I think CountryWide is a mtg company, not an FDIC insured depository bank.

[Watching from Oz]

Correction to my previous post. CRA did not require banks to improve the community around them. It required them to extend equal credit opportunities to the community, not just parts of the community (typically segregated by colour or income levels). But again, it did not require them to extend loans that were neither safe nor sound. I repeat banks were not forced to extend bad loans.

[Steve]

Anne,

You know all of the liberal talking point quite well. Unfortunately...thay are all BS. I was in the Real Estate and Mortgage business and I will educate you.... minorities with DECENT credit received good rates and paind low origination fees the same as non-minorities. Thos with NO MONEY and poor credit received loans because the bank had great pressure on them from the liberals in Congress....Barney Frank, Chris Dodd, Nancy Pelosi et. all, and even greater pressure in the form of discrimination accusations from the Congressional Black Caucus...GREATLY resisting calls for REGULATION og the bank lending practices, claiming these calls BY REPUBLICANS in both the House and Senate, we base on RACISM....the minority Mantra whenever a non-minority disagrees with a minority....consider the accusations of racism on those who were against Barak Hussein Obama or Illegal Immigration Amnesty....nobody is buying your liberal CRAP Anne. It was theRepublicans in Congress who were shouted down for calling for REGULATION and the Liberal and especially Liberal MINORITY Democrats who shouted them down with slander and Liberal Venomous accusations.

[G]

is there a list of financial institutions covered by the CRA?

i find it hard to understand the point of a law that didnt cover all financial organisations, that sounds a bit of a dubious arguement to me,

its a bit like saying murder is only illegal if certain people do it

im from the uk, i work in finance in london, im studying for an msc in finance and cfa qualification, i dont have any allegance to any political parties here or in the US, i just feel that a couple of the earlier posts miss the point a little bit

30 years isnt an inconceivable amount of time for a bubble to build and burst in, as the amount of available credit expands so does the possibility of alternative creditors who can be borrowed from to pay of existing debts

this was the basis of gordon browns freshly discredited end of boom and bust, in his utopia we could borrow to pay off debt perpetually and debt wasnt bad but a necessary aspect of growth, hindsight shows us the dangers

the fact that this crash has been so devistating could well be the fact that we are so intrenched in debt that it has taken over thirty years so such a mountain of risk to build up

it probably sounds like im having a go at democrats here, but in response i think the question should really be not who was responsible for implementing this disasterous policy, rather than why did they have too...