Here is where this economic mess all started

[Wotan31]

Note the date on the article.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999


In a move that could help increase home ownership rates among minorities
and low-income consumers, the Fannie Mae Corporation is easing the credit
requirements on loans that it will purchase from banks and other lenders.


The action, which will begin as a pilot program involving 24 banks in 15
markets -- including the New York metropolitan region -- will encourage
those banks to extend home mortgages to individuals whose credit is
generally not good enough to qualify for conventional loans. Fannie Mae
officials say they hope to make it a nationwide program by next spring.


Fannie Mae, the nation's biggest underwriter of home mortgages, has been
under increasing pressure from the Clinton Administration to expand
mortgage loans among low and moderate income people and felt pressure from
stock holders to maintain its phenomenal growth in profits.


In addition, banks, thrift institutions and mortgage companies have been
pressing Fannie Mae to help them make more loans to so-called subprime
borrowers. These borrowers whose incomes, credit ratings and savings are
not good enough to qualify for conventional loans, can only get loans from
finance companies that charge much higher interest rates -- anywhere from
three to four percentage points higher than conventional loans.


''Fannie Mae has expanded home ownership for millions of families in the
1990's by reducing down payment requirements,'' said Franklin D. Raines,
Fannie Mae's chairman and chief executive officer. ''Yet there remain too
many borrowers whose credit is just a notch below what our underwriting has
required who have been relegated to paying significantly higher mortgage
rates in the so-called subprime market.''


Demographic information on these borrowers is sketchy. But at least one
study indicates that 18 percent of the loans in the subprime market went to
black borrowers, compared to 5 per cent of loans in the conventional loan
market.


In moving, even tentatively, into this new area of lending, Fannie Mae is
taking on significantly more risk, which may not pose any difficulties
during flush economic times. But the government-subsidized corporation may
run into trouble in an economic downturn, prompting a government rescue
similar to that of the savings and loan industry in the 1980's.


''From the perspective of many people, including me, this is another thrift
industry growing up around us,'' said Peter Wallison a resident fellow at
the American Enterprise Institute. ''If they fail, the government will have
to step up and bail them out the way it stepped up and bailed out the
thrift industry.''


Under Fannie Mae's pilot program, consumers who qualify can secure a
mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate
that currently averages about 7.76 per cent. If the borrower makes his or
her monthly payments on time for two years, the one percentage point
premium is dropped.


Fannie Mae, the nation's biggest underwriter of home mortgages, does not
lend money directly to consumers. Instead, it purchases loans that banks
make on what is called the secondary market. By expanding the type of loans
that it will buy, Fannie Mae is hoping to spur banks to make more loans to
people with less-than-stellar credit ratings.


Fannie Mae officials stress that the new mortgages will be extended to all
potential borrowers who can qualify for a mortgage. But they add that the
move is intended in part to increase the number of minority and low income
home owners who tend to have worse credit ratings than non-Hispanic whites.


Home ownership has, in fact, exploded among minorities during the economic
boom of the 1990's. The number of mortgages extended to Hispanic applicants
jumped by 87.2 per cent from 1993 to 1998, according to Harvard
University's Joint Center for Housing Studies. During that same period the
number of African Americans who got mortgages to buy a home increased by
71.9 per cent and the number of Asian Americans by 46.3 per cent.

[bobber205]

Note the date on the article.


Fannie Mae, the nation's biggest underwriter of home mortgages, has been
under increasing pressure from the Clinton Administration to expand
mortgage loans among low and moderate income peopleand felt pressure from
stock holders to maintain its phenomenal growth in profits.


That last sentence is as important as the rest of it. :)

[kavika411]

Interesting find.

[diamond.g]

That almost sounds like giving "minorities" the ability to own a house is the downfall of our economy. Serves us right for trying to let everyone get a piece of the "American Pie". :rolleyes:

and felt pressure from stock holders to maintain its phenomenal growth in profits.
I am not sure loaning money to people that can't afford it is completely the fault of the loanee. Maybe the loaner has some fault as well... Bah, what a silly thought that was...

[leekohler]

We've been through this before, haven't we? Haven't we discussed this to death?

[Queso]

Erm....no. Partially right, but the economic mess started when people were convinced that spending beyond their means was actually a good idea. That was caused by Western banks to channel the huge amount of cheap money banks in the Far East were offering them and make profits in the meantime.

And it most certainly is not related to any particular ethnic nor income group. Far too many people, right the way through the social spectrum, have spent beyond their income for too long, fooled into thinking spending power equals prosperity.

[leekohler]

Erm....no. Partially right, but the economic mess started when people were convinced that spending beyond their means was actually a good idea. That was caused by Western banks to channel the huge amount of cheap money banks in the Far East were offering them and make profits in the meantime.

And it most certainly is not related to any particular ethnic nor income group. Far too many people, right the way through the social spectrum, have spent beyond their income for too long, fooled into thinking spending power equals prosperity.

Exactly- I've seen this article posted in these forums already. It's disgusting how the right is trying to paint this as a problem caused by poor minorities.

[bobber205]

I think, unfortunately, there is some truth in this. Though it's not all the fault of the minority groups.

Minority groups tend to worse off financially. That's a fact.
Worse off financially = less ability pay loans.

Now I think the real blame lies in the stupidity of the banks to give loans that poorer people had no hopes in ever paying... :(

If this has been said, I am sorry for echoing it. :)

[Queso]

It's disgusting how the right is trying to paint this as a problem caused by poor minorities.
You wait, if that mud doesn't stick it'll all be down to terrorists :rolleyes:

[atszyman]

If that's where the mess started why are there bank failures beyond Freddie Mac and Fannie May?

Sure bad loans may have caused their failures, but just because they were making bad loans did not force other banks to do that as well, or force the trading of debt (much of it bad) on Wall Street.

Bad loans, deregulation and the housing bubble all led to this, no one party is to blame.

Based on their performance so far in the crisis, Obama has been more calm, collected, and able to handle more than one thing at a time. McCain had to stop campaigning, threaten to cancel the debate and couldn't even trust his running mate to campaign in his stead while he went to D.C. to help "fix" the problems. With all of the responsibilities that the President has, I tend to put more confidence in one who can multitask and utilize their VP to do critical tasks than one who has to do it all and can only handle one thing at a time. Of course it does help that I'm more in line with the Democrat's platform than the GOP at this point in time.

[Wotan31]

Now I think the real blame lies in the stupidity of the banks to give loans that poorer people had no hopes in ever paying... :(

Bingo! This has nothing to do with race. Nothing. It has everything to do with the borrowers ability to repay the loan, and also with mis-guided government initiatives that ultimately lowered the standard for lending.

It's disgusting how the left is trying to paint anyone as racist who dares to point out the inherently high risk in sub-prime lending.

[heehee]

Bingo! This has nothing to do with race. Nothing. It has everything to do with lending money to people who have no chance of ever paying it back.

It's disgusting how the left is trying to paint anyone as racist who dares to take away loans / programs / etc. that cater to minorities.

WOW! I guess it's the same as people blaming McDonalds or cigarette companies for heart attacks. What happened to people taking responsibilities for their actions? It's always someone else's fault. :rolleyes:

[Wotan31]

We've been through this before, haven't we? Haven't we discussed this to death?
In 1999, everyone was talking tech stocks and tech bubble. No one was predicting a government bailout of the financial industry due to failures in sub-prime lending. Nobody. This author hit the nail on the head with that prediction!!

[Peace]

Exactly- I've seen this article posted in these forums already. It's disgusting how the right is trying to paint this as a problem caused by poor minorities.

If you really read that Lee you'll see they are trying to do the same thing they did in the last two elections..

Blame Clinton..

They don't want to discuss the current situation choosing rather to go after Clinton as usual.

[Queso]

Bingo! This has nothing to do with race. Nothing. It has everything to do with lending money to people who have no chance of ever paying it back.
It has everything to do with promoting the ideal that consumerism and material possessions are the only thing we should measure ourselves by.

The philosophy of consumerism's natural destination is always ruin. As time progresses, more and more of society's financial resources become locked up into just sustaining the current position. Debt increases, and more and more people get caught in a cycle of having to borrow money to pay off those debts. Eventually the tipping point is reached whereby the money supply cannot keep up with the need for debt and the entire house of cards collapses.

The alarm bells for the current mess started ringing when people re-mortgaging their homes continually released equity to fund their consumerism. By the time debt consolidation loans started advertising on TV the klaxons were deafening.....but by that point governments actually required people to consume in order to keep the machines of both production and tax collection running.

Always remember:- Whatever they tell you, you are NOT a consumer. You are a human being. You don't NEED any of that crap they try and sell you.

And an even bigger thing to remember :- Consumerism ≠ Capitalism!

[leekohler]

If you really read that Lee you'll see they are trying to do the same thing they did in the last two elections..

Blame Clinton..

They don't want to discuss the current situation choosing rather to go after Clinton as usual.

Of course they are. It's a tactic as old as the hills and it's not working this time.

[Wotan31]

WOW! I guess it's the same as people blaming McDonalds or cigarette companies for heart attacks. What happened to people taking responsibilities for their actions? It's always someone else's fault. :rolleyes:
I agree with you! Yes I do!

However - with McDonalds and cigarettes, the consequences are purely for the individual to bear. And rightly so.

With lending and the financial industry, as we've clearly seen, the individual responsibility (or lack there of) of a large number of borrowers can have a profound and detrimental impact on the entire economy. That's why government and commercial organizations exist to regulate interest rates and lending practices - which they clearly did a piss-poor job of by implementing the policy described in the article.

[Badandy]

WOW! I guess it's the same as people blaming McDonalds or cigarette companies for heart attacks. What happened to people taking responsibilities for their actions? It's always someone else's fault. :rolleyes:

How about when the government "encourages" McDonalds (by exerting political and economic pressure) to practically give away their cheeseburgers to already-obese people?

[Wotan31]

We've been through this before, haven't we? Haven't we discussed this to death?

They don't want to discuss the current situation choosing rather to go after Clinton as usual.

Ha! I love it! Discussing this topic too much? Or avoiding the topic altogether?
It's BOTH!! Hahahahahaa! How typical!

[hulugu]

How about when the government "encourages" McDonalds (by exerting political and economic pressure) to practically give away their cheeseburgers to already-obese people?

F&F spent a massive amount of money lobbying Congress. If this was such a problem and F&F felt they (along with other mortgage companies) were being forced by the government to extend out bad loans, then this either proves that their money was poorly spent or, and I think more likely, they were making money and thus ignored the problem.

This also conveniently ignores companies like Countrywide, who knew exactly what they were doing and made millions writing not only sub-prime loans, but 110% or 100% LTV, or loans without any financial safeguards: including the lack of credit or income checks. In many cases, people were allowed to "write down" their income and were encouraged to lie.
This didn't come down from F&F or HUD or the CRI, this came because the agents knew they could pass these loans up into the system and make huge amounts of money.

In reality, the whole thing was an inverted pyramid scheme with the loan officers at the bottom and Wall Street at the top. Wall Street got left holding the bag.

Furthermore, the system has been designed, through incompetence, to falter once the housing boom ended. Blame the government all you want, blame the borrowers all you want, but remember that these are convenient scapegoats for the real scalawags who made huge amounts of money while wrecking the economy.


To the OP, this is the third thread on this subject, did you read the others?

[leekohler]

Ha! I love it! Discussing this topic too much? Or avoiding the topic altogether?
It's BOTH!! Hahahahahaa! How typical!

The topic hasn't been avoided at all. It's been discussed quite a bit. And new threads on old news are far from encouraged here. If you could be bothered to search the forums once in a while, you'd know that.

http://forums.macrumors.com/showthread.php?t=568741&page=3

Please use your mouse or scroll wheel to scroll near the bottom of the page.

[CorvusCamenarum]

Bingo! This has nothing to do with race. Nothing. It has everything to do with the borrowers ability to repay the loan, and also with mis-guided government initiatives that ultimately lowered the standard for lending.

It's disgusting how the left is trying to paint anyone as racist who dares to point out the inherently high risk in sub-prime lending.

I posted a link to a similar article in the Ron Paul/bailout thread and got the same treatment. I guess IOKIYTNYT.

If you really read that Lee you'll see they are trying to do the same thing they did in the last two elections..

Blame Clinton..

They don't want to discuss the current situation choosing rather to go after Clinton as usual.
Actually I blame Bush more than I ever would Clinton in this case. Bush is the one who pushed the F&F quotas to untenable levels.

[Ugg]

In addition, banks, thrift institutions and mortgage companies have been
pressing Fannie Mae to help them make more loans to so-called subprime
borrowers.

This is what it was all about, the financial institutions wanting a guarantee on unviable loans. Anyone who thinks this is about minorities obviously has a racist agenda. This is about the banks wanting guarantees to make stupid loans.

[leekohler]

I guess IOKIYTNYT.

No- it's never OK. It's a completely inaccurate POV, as was also pointed out in that thread.


Actually I blame Bush more than I ever would Clinton in this case. Bush is the one who pushed the F&F quotas to untenable levels.

Thank God for small miracles. ;)

[Aranince]

I'm pretty sure its partially the Democrats fault, and partially the people's fault, and it's Bush's fault. The democrats pulled the whole discrimination card to pretty much force the banks into giving out loans. It's the people's fault because they should not have gotten loans they could not pay for. People really need to take personal responsibility and not glide through life expecting the government to hold their hand.

[leekohler]

I'm pretty sure its partially the Democrats fault, and partially the people's fault, and it's Bush's fault. The democrats pulled the whole discrimination card to pretty much force the banks into giving out loans. It's the people's fault because they should not have gotten loans they could not pay for. People really need to take personal responsibility and not glide through life expecting the government to hold their hand.

I need proof of these so-called "forced" loans, please. That little line is getting pretty old.

[diamond.g]

I'm pretty sure its partially the Democrats fault, and partially the people's fault, and it's Bush's fault. The democrats pulled the whole discrimination card to pretty much force the banks into giving out loans. It's the people's fault because they should not have gotten loans they could not pay for. People really need to take personal responsibility and not glide through life expecting the government to hold their hand.

So you totally believe that the bailout shouldn't happen and the financial institutions should take responsibility and not glide through life expecting the government to hold their hand?

[hulugu]

... It's the people's fault because they should not have gotten loans they could not pay for. People really need to take personal responsibility and not glide through life expecting the government to hold their hand.

Change the word people to the word banks and you have a handle on the situation.

This is one of those situations that should require a circular firing-squad: nearly everyone involved has some measure of culpability.

[CorvusCamenarum]

Thank God for small miracles. ;)

I may be conservative, but I'm no Republican. Blame and credit where it's due, on both sides.

I'll even do you one better. Steve Sailer drops a flaming bag of dog poo on Karl Rove's doorstep. (http://www.vdare.com/sailer/080928_rove.htm)

[mactastic]

The democrats pulled the whole discrimination card to pretty much force the banks into giving out loans.

I need proof of these so-called "forced" loans, please. That little line is getting pretty old.
Exactly. I've heard this line about how the jackbooted thugs showed up and held guns to the heads of bank loan officers while screaming "give up the ****ing subprime loans NOW mother******" over and over. Yet when asked for proof of this, we see things like this, where while there may have been "encouragement" to increase profits by upping numbers of subprime mortgages, any bank officer who thought it was an undue risk was more than capable of exerting their personal responsibility to refuse to offer such loans. But no coercion. And in fact, as pointed out, lots of lobbying by the banking industry to lessen oversight and regulations so as to further increase profits.

No one was "pretty much forced" to give out money they didn't want to. Except the taxpayers when cleaning up the mess, of course.

Not to mention that while conservatives will always point to who signed the law in 1999, they oddly enough neglect to mention who sponsored the law in question...

[Wotan31]

Actually I blame Bush more than I ever would Clinton in this case. Bush is the one who pushed the F&F quotas to untenable levels.

I agree - the Bush administration also did little to nothing to counter the effects of the bubble. People were screaming "bubble" for years yet we didn't see any new legislation or anything to try and counter those bubble effects. We saw lowering of interest rates, which was in an effort to keep the economy moving, but IMO it only contributed to the problem since lending was still fast and loose until very recently.

Another good article on the subject here: http://pajamasmedia.com/rogerkimball/2008/09/29/who-caused-the-biggest-financial-crisis-since-the-great-depression/

[CorvusCamenarum]

I need proof of these so-called "forced" loans, please. That little line is getting pretty old.

From the article Wotan31 cites:
But wait: how did it force banks to do this? Easy. Introduce a federal requirement that banks make the loans or face penalties. As Howard Husock, writing in City Journal way back in 2000 observed: “Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.”

I'd also recommend the City Journal article in its entirety; it lays into the CRA quite a bit.
link (http://www.city-journal.org/html/10_1_the_trillion_dollar.html)

[hulugu]

The article has a definite bias, this sentence alone should make you question just exactly how fair the author may be:

But what about people who do not work hard (if they work at all)? What about people who have not saved up for a down payment? What about people who do not pay their bills on time (if they pay them at all)? Why shouldn’t they get to live the American dream?

That said, there is definitely some truth to what he says, however I don't see how this absolves the mortgage companies who were playing fast and loose beyond the government requirements and who then sold these loans up along the chain, including bundling these 'sub-prime' loans with good loans, etc.

[Aranince]

But what about people who do not work hard (if they work at all)? What about people who have not saved up for a down payment? What about people who do not pay their bills on time (if they pay them at all)? Why shouldn’t they get to live the American dream?


Because the American dream is not a right.

[hulugu]

Because the American dream is not a right.

Nobody said it was.

My point was that the author has a distinct bias against those who are the market for 'sub-prime' loans and assumes that those who received these loans were lazy, profligate, tardy or incompetent in some way. It may be true, but it points to a particular bias nonetheless.

[Agathon]

Erm....no. Partially right, but the economic mess started when Americans were convinced that spending beyond their means was actually a good idea.

FTFY

[Dont Hurt Me]

I'm pretty sure its partially the Democrats fault, and partially the people's fault, and it's Bush's fault. The democrats pulled the whole discrimination card to pretty much force the banks into giving out loans. It's the people's fault because they should not have gotten loans they could not pay for. People really need to take personal responsibility and not glide through life expecting the government to hold their hand.
Dont forget the REPUBLICANS, they were owned by fannie and freddie and the Republicans have tanked the economy by spending,spending and spending under Bush & 6 years of a republican Congress. He didnt even know he had a veto pen for those 1st 6 years.

Oil, Energy,Katrina,Housing,Iraq,Afghanistan, and a guy named Bin Laden just to name a few of the things he has really really screwed up and now the economy. I wonder if he has a signing statement for that one?

[Wotan31]

I need proof of these so-called "forced" loans, please. That little line is getting pretty old.

Exactly. I've heard this line about how the jackbooted thugs showed up and held guns to the heads of bank loan officers while screaming "give up the ****ing subprime loans NOW mother******" over and over.

Read up on a piece of legislation called the Community Reinvestment Act. Yes, lenders were legally compelled to offer subprime loans.

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

Ok, you both can go back to sleep now. :rolleyes:

[Don't panic]

wotan, you forgot to highlight the most relevant part in this article:

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate
that currently averages about 7.76 per cent. If the borrower makes his or
her monthly payments on time for two years, the one percentage point
premium is dropped.

do you really think this is what has caused the crisis? come on.

the problem is that the increasing deregulation and the insurance ping-ponging led to the belief that there was no (apparent) risk for the primary lender in approving contracts that everyone -even and especially higher middle class- could not afford.

[Ugg]

Read up on a piece of legislation called the Community Reinvestment Act. Yes, lenders were legally compelled to offer subprime loans.

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

Ok, you both can go back to sleep now. :rolleyes:

They were not legally compelled to offer subprime loans. What they were legally compelled to do is invest in their communities.

Also, if you'll read the entire article, you'll notice that the vast majority of subprime loans were made by independent mortgage companies. Companies that had absolutely no legal requirement to lend to underserved segments of the population.

Perhaps it's time for you to wake up.....?

[leekohler]

They were not legally compelled to offer subprime loans. What they were legally compelled to do is invest in their communities.

Also, if you'll read the entire article, you'll notice that the vast majority of subprime loans were made by independent mortgage companies. Companies that had absolutely no legal requirement to lend to underserved segments of the population.

Perhaps it's time for you to wake up.....?

B-b-but...the free market couldn't possibly have failed! :rolleyes:

[Wotan31]

Also, if you'll read the entire article, you'll notice that the vast majority of subprime loans were made by independent mortgage companies. Companies that had absolutely no legal requirement to lend to underserved segments of the population.
Also, if you'll read the entire article - including the disputes page - you'll see that the accuracy of what you've just quoted is in question. ;)
B-b-but...the free market couldn't possibly have failed! :rolleyes:
That's a funny thing to say. That's one of the benefits of the free market - that ineffective corporations WILL fail. And no, I'm not in favor of the bailout - I think Fannie and Freddie *should* go bankrupt. Why should the tax payers carry the burden of all these foolish borrowers, lenders, and investors?

[Ugg]

Also, if you'll read the entire article - including the disputes page - you'll see that the accuracy of what you've just quoted is in question. ;)

That's a funny thing to say. That's one of the benefits of the free market - that ineffective corporations WILL fail. And no, I'm not in favor of the bailout - I think Fannie and Freddie *should* go bankrupt. Why should the tax payers carry the burden of all these foolish borrowers, lenders, and investors?

There's nothing on that page but a lot of racial bias and empty numbers, I doubt there will be any realistic evaluation of the impact of the CRA for another ten years or so.

As far as your statement to lee is concerned, it all boils down reagonomics along with Greenspan's "growth at all costs". This nightmare wasn't caused by community investment but by a disastrous deregulation of all markets. If you voted for any of the bozos, you're as much to blame as anyone.

[Anuba]

The article identifies one link in the chain, certainly, but it started long before that with Alan Greenspan and the absurdly low interest rate. You could also go back to the Reagan days when the whole concept of private ownership on Main St. was introduced. It was thought that the more stakes people have in the markets (stock, home ownership etc) the more likely they will be to vote Republican. This MO was copied by right-wing parties all over the world and played a major part in moving the center in European politics much further to the right.

[hulugu]

Why the economic mess is such a mess, or the Credit Default Swap. The Monster That Ate Wall Street (http://www.newsweek.com/id/161199)

From the article:

The country's biggest insurance company, AIG, had to be bailed out by American taxpayers after it defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and scores of other entities. So much of what's gone wrong with the financial system in the past year can be traced back to credit default swaps, which ballooned into a $62 trillion market before ratcheting down to $55 trillion last week—nearly four times the value of all stocks traded on the New York Stock Exchange. There's a reason Warren Buffett called these instruments "financial weapons of mass destruction." Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say.

Later, after corporate blowouts like Enron and WorldCom, it became clear there was a big need for protection against company implosions, and credit default swaps proved just the tool. By then, the CDS market was more than doubling every year, surpassing $100 billion in 2000 and totaling $6.4 trillion by 2004.
And then came the housing boom. As the Federal Reserve cut interest rates and Americans started buying homes in record numbers, mortgage-backed securities became the hot new investment. Mortgages were pooled together, and sliced and diced into bonds that were bought by just about every financial institution imaginable: investment banks, commercial banks, hedge funds, pension funds. For many of those mortgage-backed securities, credit default swaps were taken out to protect against default. "These structures were such a great deal, everyone and their dog decided to jump in, which led to massive growth in the CDS market," says Rohan Douglas, who ran Salomon Brothers and Citigroup's global credit swaps research division through the 1990s.

One of the things that continues to be unacknowledged by people who are busily bashing the CRA is how the failure of mortgages is also dragging down Wall Street and insurance companies like AIG.

Also, according to this American Prospect article (http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis) there's some doubt that the CRA forced lenders to approve loans large enough to cause this financial panic. According to this article (http://www.prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2008&base_name=liberals_and_the_shtpile), the exposure for mortgage companies was around 20% of their total loans.

Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."

I'm going to follow up on this more and look for correlating sources, but thus far it appears that the CRA should only have affected some of the loans and thus should not be blamed for the panic.

[leekohler]

As far as your statement to lee is concerned, it all boils down reagonomics along with Greenspan's "growth at all costs". This nightmare wasn't caused by community investment but by a disastrous deregulation of all markets. If you voted for any of the bozos, you're as much to blame as anyone.

EXACTLY. The very same people who told everyone the free market could fix everything are now the very same people who are crying for a bailout. Then they sit there and act as if they never said the market was the best thing in the world. I'm sick of the lies. The free market works for a lot of things, but NOT everything.

[glocke12]

It seems pretty obvious to me that the fault lies with:

a) the person or administration that relaxed the rules to allow people who couldnt afford homes to get home loans they couldnt afford.

b) the banks themselves for writing and approving loans to people who could barely afford them.

c) to some extent the people who got the loan are at fault, but not the same extent as group a and group b.

seems pretty simple to me.

[mactastic]

I think we've finally gotten to the root cause of the Wall Street disaster -- and like most other mishaps and disasters around the world, this one was apparently caused by teh gheys as well.

Sorry Lee (and our other MR homosexuals), it turns out this was all your fault (http://pageoneq.com/news/2008/Fundamentalists_blame_Wall_Street_0930.html). :rolleyes:

[SactoGuy18]

In short, Fannie Mae and Freddie Mac took on loans of a too risky nature. Not a good idea to start with!

You know, if the IRS had still allowed the partial deduction of housing rental costs (I believe the IRS allowed this for many years) we wouldn't be stuck in this mess to start with. Buying a house is by far the largest investment in your life and doing it requires a LOT of good financial planning to start with.

[Queso]

Sorry Lee (and our other MR homosexuals), it turns out this was all your fault (http://pageoneq.com/news/2008/Fundamentalists_blame_Wall_Street_0930.html). :rolleyes:
I never realised my getting married last year would have such far reaching consequences :o

Can every other Ghey on the forum please warn us all before doing something similar? That way we can short sell all our stocks and make lots of cash!!

Ta :)

[leekohler]

I think we've finally gotten to the root cause of the Wall Street disaster -- and like most other mishaps and disasters around the world, this one was apparently caused by teh gheys as well.

Sorry Lee (and our other MR homosexuals), it turns out this was all your fault (http://pageoneq.com/news/2008/Fundamentalists_blame_Wall_Street_0930.html). :rolleyes:

Yes- of course. Don't you know that when we have sex, there are earthquakes and hurricanes? Tornadoes too. And now we can even cause the market to crash! Yes- gay sex is that good! :D:D;)

[Dont Hurt Me]

Meanwhile the prostitutes in washington are trying harder then hell in passing a bigger screw job to the U.S. taxpayer, hey how about another billion in pork! there its fixed.

[bobber205]

Meanwhile the prostitutes in washington are trying harder then hell in passing a bigger screw job to the U.S. taxpayer, hey how about another billion in pork! there its fixed.

Shows how shallow some Dems and Most Reps are... :(

[killr_b]

Actually this all started in '95 when the Dems led by Clinton made major changes to the Community Reinvestment Act that basically forced lenders to offer more subprime mortgages to low income borrowers.

In '97 these mortgages were packaged as "securities backed by the federal government" through Fannie and Freddie. These securities were sold to investment banks, Bear Sterns being the first in this game, who then re-bundled them into greater securities and leveraged them out between 10 and 100 times over.

That's 1995 when Clinton changed the requirements and 1997 when the securities were first sold to Bear Sterns.

Now lets be clear: Clinton changed things for the lenders, but the lenders were still irresponsible in their lending. Investment banks did what they do and leveraged the securities they held, but now they were ignoring "fractional reserve" and leveraging to their hearts content. (that's how they got up to 100 times)

Housing prices became unhinged from the CPI inflation rate and exploded in price in 1997, but noticeably in 1998. By 2005 92% of new mortgages were of the subprime/ interest only flavor.

The problem came in 2003 when housing prices began to fall and Fannie and Freddie "assets" were deemed "overvalued" which in turn meant all the securities were overvalued and backed by nothing.

In 2007 housing prices hit the floor as they rejoined the rest of the CPI and suddenly everyone was asking how they were going to balance the books.

Well, the answer apparently is to rob the American people.

[mactastic]

Yes- of course. Don't you know that when we have sex, there are earthquakes and hurricanes? Tornadoes too. And now we can even cause the market to crash! Yes- gay sex is that good! :D:D;)
And you can apparently bring my marriage crashing down with one double-tuxedo ceremony. It's almost as if being gay makes you a superhero!

[leekohler]

Actually this all started in '95 when the Dems led by Clinton made major changes to the Community Reinvestment Act that basically forced lenders to offer more subprime mortgages to low income borrowers.

In '97 these mortgages were packaged as "securities backed by the federal government" through Fannie and Freddie. These securities were sold to investment banks, Bear Sterns being the first in this game, who then re-bundled them into greater securities and leveraged them out between 10 and 100 times over.

That's 1995 when Clinton changed the requirements and 1997 when the securities were first sold to Bear Sterns.

Now lets be clear: Clinton changed things for the lenders, but the lenders were still irresponsible in their lending. Investment banks did what they do and leveraged the securities they held, but now they were ignoring "fractional reserve" and leveraging to their hearts content. (that's how they got up to 100 times)

Housing prices became unhinged from the CPI inflation rate and exploded in price in 1997, but noticeably in 1998. By 2005 92% of new mortgages were of the subprime/ interest only flavor.

The problem came in 2003 when housing prices began to fall and Fannie and Freddie "assets" were deemed "overvalued" which in turn meant all the securities were overvalued and backed by nothing.

In 2007 housing prices hit the floor as they rejoined the rest of the CPI and suddenly everyone was asking how they were going to balance the books.

Well, the answer apparently is to rob the American people.

Of course! It's ALL Clinton's fault! Little Georgie isn't responsible for anything, ever. Please- this is really tired.

[atszyman]

Actually this all started in '95 when the Dems led by Clinton made major changes to the Community Reinvestment Act that basically forced lenders to offer more subprime mortgages to low income borrowers.


In 1995 the Republicans held both houses of Congress (http://en.wikipedia.org/wiki/Republican_Revolution) so Clinton and the Dems cannot possibly bear all the blame. The GOP had the power to stop him if the policy was so disasterous.

[leekohler]

In 1995 the Republicans held both houses of Congress (http://en.wikipedia.org/wiki/Republican_Revolution) so Clinton and the Dems cannot possibly bear all the blame. The GOP had the power to stop him if the policy was so disasterous.

No, no, no! It was Clinton's fault! All of it! Everything that happens from now till doomsday is Clinton's fault! Why don't you just stop it, you...you...you librool! :D

[gotzero]

This original article is ridiculously ill informed.

If you are actually interested in learning about what happened, start with Paulson asking for an increase in leverage limits as the head of Goldman, then move to deregulation for banks, investment banks, and brokerages. Finally, take a look at deregulation of predatory lending laws.

All of these things were proud accomplishments of the neo-cons. The increase in home ownership has been a desire of the federal government since post-WWII, and we managed not to have any problems before until we abandoned using ability to repay as a criteria for lending.

[skunk]

Try this for size:
Dominic Lawson: Democrat fingerprints are all over the financial crisis

Of all the characteristics of a successful politician, none is more essential than bare-faced cheek. Never has this been more evident than in the past fortnight, as senior Democrat members of the US legislature have sought to lay all the blame for the country's financial crisis on the executive arm of Government and Wall Street.

Neither of these two institutions is blameless – far from it. Yet when I see such senior Democrats as Barney Frank, Chairman of the House Financial Services Committee, and Christopher Dodd, Chairman of the Senate's Banking Committee, play the part of avenging angels – well, I can only stand in silent awe at the sheer tight-bottomed nerve of it. These are men with sphincters of steel.

What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush – and other Republicans – to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings – to which its senior executives' bonuses were linked – by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.

Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush's initiative, Frank declared: "The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially." His colleague on the committee, the California Democrat Maxine Walters, said: "There were nearly a dozen hearings where we were trying to fix something that wasn't broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines."

When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that "our assets are so riskless, we could have a capital ratio of under 2 per cent".

Maxine Walters' complaint about previous attempts to bring the great state-sponsored housing finance bodies under stricter control was partly a reference to Bill Clinton's efforts. Last week the former President acknowledged that "responsibility" for the absence of proper regulation rested "with Democrats who were resisting any efforts of Republicans in Congress, and earlier when I was President and tried to impose tighter standards on Fannie Mae and Freddie Mac". Then, as now, members of his own party saw all such initiatives as unwonted attacks on the chances for low-earners, and particularly African-Americans, to own their own homes.

From its inception in 1938 Fannie Mae (and later Freddie Mac) was designed to make housing finance available to "ordinary Americans". This was a noble aim. In the 1970s another Democrat President, Jimmy Carter, introduced legislation which demanded that such bodies enhance their lending to minorities. Again, this was based on a noble idea: to stamp out racism in the mortgage market. Thus by 1998 you had the Federal Reserve Bank of Boston producing a document entitled "Closing the Gap: a Guide to Equal Opportunities Lending", which instructed banks that an applicant's "lack of credit history should not be seen as a negative factor" in obtaining a mortgage. As Stephen Malanga of the Manhatta *Institute notes: "Of course the new federal standards couldn't just apply to minorities. If they could pay back loans under these terms, then so could the majority of loan applicants. Quickly, these became the new standards in the industry. As the housing market boomed, banks embraced these new standards with a vengeance. Between 2004 and 2007, Fannie Mae and Freddie Mac became the biggest purchasers of subprime mortgages from all kinds of applicants, white and minority, and most of these loans were based on lending standards promoted by the Government."

One of the few journalists to see where this would lead was Jeff Jacoby, of the Boston Globe. Last week he reminded his readers what he had written in 1995: "Our banks are knowingly approving risky loans to get the feds and the activists off their backs... When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians and regulators plans to take the credit?". Jacoby adds now: "Barney Frank doesn't. But his fingerprints are all over this fiasco."

It's true that the improvident lending was not initiated by Fannie and Freddie: their role in this was to buy these loans and sell them on – but then the music stopped. Cynical students of the American political system will note that the biggest recipient of campaign contributions from the munificent duo of Fannie and Freddie over the past 20 years was one Christopher Dodd, Democrat Chairman of the Senate's Banking Committee.

Rather surprisingly, given that he has only been in the Senate for four of those years, the second biggest beneficiary was Barack Obama. In August the Washington Post reported that Obama's presidential campaign team had sought the advice of Franklin Raines "on mortgage and housing policy matters". Perhaps Mr Obama's team just wanted to know where all the bodies are buried – there are rather a lot of them.

The saddest outcome of all this within America – apart from the crippling cost to the nation's taxpayers – is that the very people the Democrats had intended to help will be the biggest victims: for many years to come banks will demand the most stringent terms for mortgages to the least well off.

In the meantime, let us praise Congressman Artur Davis of Alabama, who confessed this week: "Like a lot of my Democrat colleagues I was too slow to appreciate the recklessness of Fannie and Freddie when in retrospect I should have heeded the concerns raised. I wish my Democrat colleagues would admit that we were wrong." I fear Congressman Davis will not go far with this attitude – but at least he will be able to look at himself in the mirror.
http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-democrat-fingerprints-are-all-over-the-financial-crisis-949653.html

[killr_b]

In 1995 the Republicans held both houses of Congress (http://en.wikipedia.org/wiki/Republican_Revolution) so Clinton and the Dems cannot possibly bear all the blame. The GOP had the power to stop him if the policy was so disasterous.

Of course! It's ALL Clinton's fault! Little Georgie isn't responsible for anything, ever. Please- this is really tired.

The Dems authored the legislation, under direction of Clinton's getting more houses for families.

Leekohler at what point did I say it was AAAAALLLLLLLLL Clinton's fault? The second part of your statement is a complete strawman. I never said anything about the Bush admin.

Reps went along because… America has a ONE party system. They don't care what you think!

[mactastic]

I had no idea Phil Graham was a Democrat... John McCain might be surprised by that as well...

[iShater]

The problem is that when someone asked for a $200k loan, the banks offered and convinced them that they really can afford $400k. There is a difference between extending credit to someone, and assisting them in blowing their life up. :rolleyes:

[leekohler]

The Dems authored the legislation, under direction of Clinton's getting more houses for families.

Leekohler at what point did I say it was AAAAALLLLLLLLL Clinton's fault? The second part of your statement is a complete strawman. I never said anything about the Bush admin.

Reps went along because… America has a ONE party system. They don't care what you think!

This piece of legislation goes further back than Clinton, my friend. And really, if you were paying attention back then, the Republicans didn't want to do anything for Clinton at all. If they are supposedly the guardians of the free market, then they certainly had ample opportunity to oppose said legislation and defeat it. They also had 6 years under Bush to do the same. Why didn't they?

[killr_b]

This piece of legislation goes further back than Clinton, my friend. And really, if you were paying attention back then, the Republicans didn't want to do anything for Clinton at all. If they are supposedly the guardians of the free market, then they certainly had ample opportunity to oppose said legislation and defeat it. They also had 6 years under Bush to do the same. Why didn't they?

He "added authorizations" by executive order. Executive orders are not reviewed by the senate or the house or the supreme court.

[.Andy]

He "added authorizations" by executive order. Executive orders are not reviewed by the senate or the house or the supreme court.
Quick question. Was it dems of repubs that authorised the CIA to create the virus that causes lung cancer to kill castro?

[balamw]

I had no idea Phil Graham was a Democrat... John McCain might be surprised by that as well...

Well, he was once upon a time, back before McCain came to town... http://en.wikipedia.org/wiki/Phil_Gramm

William Philip Gramm (born July 8, 1942, in Fort Benning, Georgia, USA) is an American politician who served as a Democratic Congressman (1978–1983), a Republican Congressman (1983–1985) and a Republican Senator from Texas (1985–2002).

B

[solvs]

it lays into the CRA quite a bit.
Actually this all started in '95 when the Dems led by Clinton made major changes to the Community Reinvestment Act that basically forced lenders to offer more subprime mortgages to low income borrowers.
Most of the issues we're having now have little if anything to do with CRA, nor are most of those affected even under the same obligations. BTW, those later things that were "signed by Clinton" were because Congress had a veto proof majority, led by the GOP and conservative Dems. Blaming it on CRA, even if you acknowledge other factors, is ridiculous scapegoating, that anyone who isn't just listening to talking points from those who want more deregulation, which is the real cause, would know. It's so much more complicated. I posted more here:

http://forums.macrumors.com/showthread.php?p=6353145#post6353145

Also, according to this American Prospect article (http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis)
American Prospect is a good place to start, but I fear those who need to read it most either won't, or won't understand what they say.

[Rodimus Prime]

Most of the issues we're having now have little if anything to do with CRA, nor are most of those affected even under the same obligations. BTW, those later things that were "signed by Clinton" were because Congress had a veto proof majority, led by the GOP and conservative Dems. Blaming it on CRA, even if you acknowledge other factors, is ridiculous scapegoating, that anyone who isn't just listening to talking points from those who want more deregulation, which is the real cause, would know. It's so much more complicated. I posted more here:

http://forums.macrumors.com/showthread.php?p=6353145#post6353145


American Prospect is a good place to start, but I fear those who need to read it most either won't, or won't understand what they say.

I would not call signing it because of a veto proof majority is an excuse. If he had vetoed it it would of at least been in congress court at the time but by signing it he agreed with it so should take the blame not the cookie cutter excuse....

[ReanimationLP]

http://www.applegeeks.com/lite/strips/aglite363.jpg

Now, the lighter side of this mess.

[leekohler]

He "added authorizations" by executive order. Executive orders are not reviewed by the senate or the house or the supreme court.

Irrelevant- and you still haven't answered the question. The Republicans have had ample opportunity to undo CRA, so why didn't they?

[solvs]

I would not call signing it because of a veto proof majority is an excuse. If he had vetoed it it would of at least been in congress court at the time but by signing it he agreed with it so should take the blame not the cookie cutter excuse....
What part of "veto proof" majority (again, bipartisan, but still) are you not getting? :confused:

Irrelevant- and you still haven't answered the question. The Republicans have had ample opportunity to undo CRA, so why didn't they?
Because under Bush they actually expanded the profitable form of it, while helping to remove the parts with the regulation that aren't the majority of the problems we've been having (see link above).

[apsterling]

If you want to get really technically it goes back to Teddy and the New Deal Acts.

[Rodimus Prime]

What part of "veto proof" majority (again, bipartisan, but still) are you not getting? :confused:


Because under Bush they actually expanded the profitable form of it, while helping to remove the parts with the regulation that aren't the majority of the problems we've been having (see link above).

because if he vetoes the bill it goes back to congress and they have to vote to over ride it.

He choose not to veto and send it back to congress.

[solvs]

If you want to get really technically it goes back to Teddy and the New Deal Acts.
It was FDR, and no it doesn't.

because if he vetoes the bill it goes back to congress and they have to vote to over ride it.

He choose not to veto and send it back to congress.
Congress already voted to override it. As per the veto proof majority. He couldn't veto it again if he wanted to (BTW, vetoed the first time around).