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Sun Tzu · 06-09-2009, 06:08 PM

Quote:

Originally Posted by shakran

That's ridiculous. Of course not. The CRA did not say "give out loans to people who are guaranteed not to be able to pay them back because you think you'll profit by reselling the house when it rises in value." The CRA was never intended to secure untenable half-million dollar loans to pizza boys. It specifically indicates that while banks should not redline based on race or neighborhood location, it should offer credit in a manner consistent with safe and sound operations.

The full quote, from the Federal Reserve Board, regarding the CRA is:

It is absurd to turn around and claim that the CRA is therefore responsible for banks acting well outside the boundaries of safe and sound operations so that their leaders could get rich off the backs of dumbasses and uneducated people too ignorant to understand that they were being encouraged to get over their head in a loan. It is even more absurd to claim that the CRA is responsible for banks purposely falsifying or omitting information about applicants so that they could guarantee a loan would be extended. The CRA was not written such that fraud is legally requested, required, or encouraged.

Thanks for pointing to the Feds 100% official textbook definition of what it is. Its really clear that logical consequences are the scarecrows of fools and the beacons of the wise. I disagree with what you are saying, and this statement "that their leaders could get rich off the backs of dumbasses and uneducated people too ignorant to understand that they were being encouraged to get over their head in a loan"- is really the apex.

The direction the US is heading is pretty clear at this point. After all the talk we'll see we are in four years, if we still have a dollar worth anything to be debating over. Even then history seems to repeat itself- Im confident you proably blame the Great Depression on capitalism.

Quote:

The thousands of mortgage defaults and foreclosures in the "subprime" housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria.

The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various "neighborhood organizations," as they like to call themselves, such as "ACORN" (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.

So-called "community groups" like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA "protest" is issued by a "community group." This can cost banks great sums of money, and the "community groups" understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the "Neighborhood Assistance Corporation of America." He once boasted to the New York Times that he had "won" loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one "community group" operating in one city – Boston.
Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.

Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as "subprime" loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.

But this is discriminatory!, complained the "community organizations." Thus, if one browses the ACORN web site, one can read of their boasts of having "predatory lending laws" passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to "subprime" borrowers.

These are price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above. So-called predatory lending laws therefore force the banks to "eat" the losses. This is undoubtedly a contributing factor to the bankruptcy of dozens of mortgage lenders over the past year.
Then of course there is the issue of the Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA. They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.

The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward. Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the "subprime" mortgage meltdown.