More BARNEY FRANK LIES Exposed
Chas. Chan
meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as
the rest of us when the two government sponsored enterprises
collapsed, triggering the financial crisis. <LOL>
Frank has been peddling this fiction ever since the economy collapsed
in September 2008. But as the The Boston Globe notes in a new,
devastating article published on October 14,
[MUST READ]
http://www.boston.com/news/politics/articles/2010/10/14/frank_haunted_by_stance_on_fannie_freddie/
not many people are buying Frank’s lies anymore. And Frank knows it.
He’s facing a surprisingly tough reelection fight, so he’s on an
apology tour through the media to save his seat. (Judicial Watch does
not endorse or oppose candidates for public office.)
Here’s an excerpt from the Globe piece (although I highly recommend
you read the article in full):
When US Representative Barney Frank spoke in a packed hearing room on
Capitol Hill seven years ago, he did not imagine that his words would
eventually haunt a reelection bid.
The issue that day in 2003 was whether mortgage backers Fannie Mae and
Freddie Mac were fiscally strong. Frank declared with his trademark
confidence that they were, accusing critics and regulators of
exaggerating threats to Fannie’s and Freddie’s financial integrity.
And, the Massachusetts Democrat maintained, “even if there were
problems, the federal government doesn’t bail them out.”
Now, it’s clear he was wrong on both points…
Here’s the thing. Frank wasn’t wrong. He was lying.
Frank claims that he “missed” the warning signs with Fannie and
Freddie because he was wearing “ideological blinders,” which was just
his lame attempt to blame Republicans. But we all know he didn’t miss
them. He just chose to ignore them.
Judicial Watch uncovered documents last year
proving that members of Congress, including — and perhaps especially —
BARNEY FRANK, were well aware that Fannie and Freddie were in deep
trouble due to corruption and incompetence and yet they DID NOTHING to
stop it.
Remember this statement by Frank during a hearing on September 10,
2003, before the House Committee on Financial Services considering a
Bush administration proposal to further regulate Fannie and Freddie?
http://www.youtube.com/watch?v=_MGT_cSi7Rs
http://www.youtube.com/watch?v=1RZVw3no2A4
"I want to begin by saying that I am glad to consider the legislation,
but I do not think we are facing any kind of a crisis. That is, in my
view, the two government sponsored enterprises we are talking about
here, Fannie Mae and Freddie Mac, are not in a crisis. We have
recently had an accounting problem with Freddie Mac that has led to
people being dismissed, as appears to be appropriate. I do not think
at this point there is a problem with a threat to the Treasury."
I don’t think there was any question Frank knew then that there was a
threat to the Treasury. But let’s say, just for argument’s sake, that
you happen to believe Barney Frank honestly “missed” the warning signs
in 2003 and 2004. What about 2008?
According to the Globe story:
_
In July 2008, then-Treasury Secretary Henry Paulson called Frank and
told him the government would need to spend “billions of taxpayer
dollars to backstop the institutions from catastrophic failure,”
according to Paulson’s recent book. Frank, despite that conversation,
appeared on national television two days later and said the companies
were “fundamentally sound, not in danger of going under.”
Unlike 2003 — when, Frank said, he didn’t realize what was going on —
this time, he was deliberately trying to reassure the public, he said.
“It was part of a conscious strategy to say to people, ‘Hey, look, we
think we can handle this,’” he said. “It didn’t work.”
Less than two months later, the government seized Fannie and Freddie
and the bailout began.
_
And it hasn’t stopped yet. Just yesterday, we learned that the Obama
administration projects losses on the two entities could approach $363
billion.
http://www.bloomberg.com/news/2010-10-21/fannie-freddie-may-draw-363-billion-fhfa-says-update1-.html
And there is no upper limit to taxpayer losses over the long term.
I find it pathetic and insulting that Barney Frank, the consummate
Washington insider, would try to “play dumb” with respect to
corruption at Fannie and Freddie. He knew what was happening at Fannie
and Freddie. He actively blocked attempts to reform the institutions
and then lied, by his own admission, to the American people about the
whole sordid affair.
Frank’s unwillingness to hold Fannie and Freddie accountable has
nothing to do with wearing “ideological blinders.” It has to do with
Frank’s “ethical blinders.”
http://biggovernment.com/tfitton/2010/10/25/more-barney-frank-lies-exposed/
WR
> If you listen to Rep. Barney Frank (D-MA), defend his role in the
> meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as
> the rest of us when the two government sponsored enterprises
> collapsed, triggering the financial crisis. <LOL>
And, as the homosexual hobgoblin, Barney Frank, took the floor,
pertified Republicans, who ran both houses of congress and held the
white house, threw themselves to the floor, screaming, and Frank, his
fangs dripping with blood and saliva, whiped his chin, laughed his
horrible laugh, and forced the panicked mob to let Fannie Mae and
Freddy Mac do whatever they wanted to. He had his way with them time
and again. The bank fiasco, the AIG mess, the subprime explosion, was
all due to his devious cunning and the horrid frear he created in the
civilized mass of Republican patriots. God spare us, least he return
to torment us more!
∅baMa∅ Tse Dung
>
> And, as the homosexual hobgoblin, Barney Frank, took the floor,
> pertified Republicans, who ran both houses of congress and held the
> white house, threw themselves to the floor, screaming, and Frank, his
> fangs dripping with blood and saliva, whiped his chin, laughed his
> horrible laugh, and forced the panicked mob to let Fannie Mae and
> Freddy Mac do whatever they wanted to. He had his way with them time
> and again. The bank fiasco, the AIG mess, the subprime explosion, was
> all due to his devious cunning and the horrid frear he created in the
> civilized mass of Republican patriots. God spare us, least he return
> to torment us more!
Does your supervisor at,
The United States Centers For Disease Control
1600 Clifton Road Northeast
Atlanta, GA 30329-4018
(770) 488-1725
(800) 232-4636
know you are wasting tax payer funds to use the internet for personal
use? He does now!
Please contact CDC Human Resources hr...@cdc.gov if you have any
questions.
MNMikew
"Chas. Chan" <tianm...@gmail.com> wrote in message
news:c20ba5e7-581d-44e5...@30g2000yql.googlegroups.com...
[MUST READ]
http://www.boston.com/news/politics/articles/2010/10/14/frank_haunted_by_stance_on_fannie_freddie/
http://www.youtube.com/watch?v=_MGT_cSi7Rs
http://www.youtube.com/watch?v=1RZVw3no2A4
http://www.bloomberg.com/news/2010-10-21/fannie-freddie-may-draw-363-billion-fhfa-says-update1-.html
http://biggovernment.com/tfitton/2010/10/25/more-barney-frank-lies-exposed/
=====================
The lefttards will simply put their hands to their ears and go na na na na I
cant hear you. Like they always do.
Pugs No Can Do
"MNMikew" <MNMi...@aol.com> wrote in message
news:8iqsdo...@mid.individual.net...
Another Saint Bush distraction.
RHF
-orig- "Chas. Chan" <tianmei...@gmail.com>
http://groups.google.com/group/rec.radio.shortwave/msg/94d1f60ce16c7761
.
Idiot's-R-Us : This NOV 2010 US National Election :
Throw The Bums Of Both Parties Out ! ! !
http://groups.google.com/group/rec.radio.shortwave/msg/eb8e5b92e0d0b7a4
.
Idiots-R-Us : Barney Frank Burning Down The
US House -&- Chris Dodd Sacking The US Senate :
Both Helped To Caused The US Economic Crises &
Unemployment & Recession & Depression
http://groups.google.com/group/rec.radio.shortwave/msg/5b0c97076e3f00b6
.
The US Congress {Democrats-and-Republicans-alike}
Passed All the Bills Which Created This Present
Day US Economic Crises of High Unemployment; and
Housing Market and Business Recession; and possible
Depression : Throw The Bums Of Both Parties Out ! ! !
.
The first step by the US Congress* was in 1977
and . . . Many Years of Incrementalism by the
US Congress followed; up to the present time...
http://en.wikipedia.org/wiki/Incrementalism
A&A - Throw The Bums Of Both Parties Out ! ! !
* Democrats-and-Republicans 'alike'
.
There is Plenty of Blame To Go Around : But Don't
DENY That Republican As Much As Democrats Are An
Equal Part Of The Political Process And The Blame
For The Present Day US Economic Problems :
+ The US House ~ US Congress Both Parties*
+ The US Senate ~ US Congress Both Parties*
+ All The US Presidents/Administrations Both Parties*
* Democrats-and-Republicans 'alike'
OMT - Throw The Bums Of Both Parties Out ! ! !
.
Subject : Burning Down The US House :
BARNEY FRANK CAUSED ECONOMIC CRISES
http://groups.google.com/group/rec.radio.shortwave/msg/6c4a9a242eec0bed
-orig- "Chas. Chan" <tianmei...@gmail.com>
.
-remember- Rome Was Not Built In A Day . . .
and the converse is true too ~ RHF
.
.
∅baMa∅ Tse Dung
> If you listen to Rep. Barney Frank (D-MA), defend his role in the
> meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as
> the rest of us when the two government sponsored enterprises
> collapsed, triggering the financial crisis. <LOL>
>
> Frank has been peddling this fiction ever since the economy collapsed
> in September 2008.
>
> http://www.youtube.com/watch?v=_MGT_cSi7Rs
> http://www.youtube.com/watch?v=1RZVw3no2A4
>
Barney is the poster child for the mortgage mess and the housing
collapse.
Don't forget it was Barney Frank who, as chairman of the Banking
Committee in 2007, continued to push for easy mortgage rules — even
for people who couldn’t afford them and had no business getting
mortgages.
In fact, the evidence shows that Frank prevented oversight and
regulation of the mortgage business — setting the stage for the
massive economic meltdown we have been living through.
As one of the most powerful Democratic members of Congress, Barney
Frank did absolutely NOTHING to rein in Fannie Mae and Freddie Mac.
This ended in disaster, causing misery beyond description.
When Bill O’Reilly grilled him about this on his show, he hemmed and
hawed and then he just shouted.
http://www.youtube.com/watch?v=Unj-kcGOe5I
But the Barney Frank story gets even worse.
It is simply astounding that as chairman of the powerful House
Financial Services Committee, Barney Frank was actually in charge of
overseeing Wall Street.
After helping create the whole housing and mortgage collapse, then
became the architect of the infamous $700 billion Wall Street bailout!
Remember — this was a time that folks like you and I on Main Street
got no help at all as our housing values and stock portfolios
plummeted and folks all over the country lost their jobs, businesses,
and homes.
But now it really gets sick.
You may have read the extraordinary news that Barney Frank felt he had
to personally loan his own campaign fund $200,000, adding to the
almost $3 million he had raised from fat-cat donors.
This means he’s sweating.
Guess who actually is donating to Frank's campaign fund.
Lo and behold, the big donors to Barney Frank’s campaign are from big
Wall Street and financial services companies!
Lamont Cranston
> If you listen to Rep. Barney Frank (D-MA), defend his role in the
> meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as
> the rest of us when the two government sponsored enterprises
> collapsed, triggering the financial crisis.<LOL>
>
LOL!
Fannie Mae and Freddie Mac were victims, not culprits
Posted by: Aaron Pressman on September 26, 2008
There�s a dangerous � and misleading � argument making the rounds about
the causes of our current credit crisis. It�s emanating from Washington
where politicians are engaging in the usual blame game but this time the
stakes are so high that we can�t afford to fall victim to political
doublespeak. In this fact-free zone, government sponsored mortgage
giants Fannie Mae and Freddie Mac caused the real estate bubble and
subprime meltdown. It�s completely false. Fannie Mae and Freddie Mac
were victims of the credit crisis, not culprits.
Start with the most basic fact of all: virtually none of the $1.5
trillion of cratering subprime mortgages were backed by Fannie or
Freddie. That�s right � most subprime mortgages did not meet Fannie or
Freddie�s strict lending standards. All those no money down, no interest
for a year, low teaser rate loans? All the loans made without checking a
borrower�s income or employment history? All made in the private sector,
without any support from Fannie and Freddie.
Look at the numbers. While the credit bubble was peaking from 2003 to
2006, the amount of loans originated by Fannie and Freddie dropped from
$2.7 trillion to $1 trillion. Meanwhile, in the private sector, the
amount of subprime loans originated jumped to $600 billion from $335
billion and Alt-A loans hit $400 billion from $85 billion in 2003.
Fannie and Freddie, which wouldn�t accept crazy floating rate loans,
which required income verification and minimum down payments, were left
out of the insanity.
There�s a must-read study by staff members of the Federal Reserve Bank
of New York analyzing the roots of the subprime crisis that came out in
March. I don�t think it got much attention then as the conclusions
seemed uncontroversial at the time. But now that Washington politicians
are trying to rewrite history, it should be mandatory reading for every
American interested in knowing how we got here.
The study identifies five causes of the subprime meltdown:
-Convoluted loan products that consumers didn�t understand.
-Credit ratings that didn�t do a good job highlighting the risks
contained in subprime-backed securities.
-Lack of incentives for institutional investors to do their own research
(they just relied on the credit ratings).
-Predatory lending and borrowing (which I think means fraud perpetrated
by borrowers).
-Significant errors in the models used by credit rating agencies to
assess subprime-backed securities.
You�ll note in the Fed�s five causes that there�s some culpability for
lenders, borrowers, investors and credit raters. There�s no blame for
Freddie Mac or Fannie Mae which had little or nothing to do with the
entire situation.
It�s certainly fair to criticize Fannie and Freddie over real issues
that contributed to their downfall. The companies had numerous
accounting problems and inadequate safeguards covering their own
investment portfolios. Those weaknesses came home to roost when the real
estate market cratered. Fannie and Freddie purchased billions of dollars
of subprime-backed securities for their own investment portfolios and
got hit just like every other investor. But it�s some kind of crazy,
politically inspired CYA to blame for the mess we�re in.
(For a more fair and balanced � and detailed � recounting of Fannie and
Freddie�s subprime investing forays, see this post from the excellent
Calculated Risk blog.)
TrackBack URL for this entry:
http://blogs.businessweek.com/mt/mt-tb.cgi/11847.1412813109
N∅ ∅baMa∅
wrote:
> On 10/26/2010 1:54 PM, Chas. Chan wrote:
>
> > If you listen to Rep. Barney Frank (D-MA), defend his role in the
> > meltdown of Fannie Mae and Freddie Mac, he was just as blindsided as
> > the rest of us when the two government sponsored enterprises
> > collapsed, triggering the financial crisis.<LOL>
>
> LOL!
>
> Fannie Mae and Freddie Mac were victims, not culprits
>
> Posted by: Aaron Pressman on September 26, 2008
>
Aaron Pressman is just another Kiss-0baMa0-JackAss!
Reader Comments
"Your idiotic editorial seems to imply that... bank robbers aren't to
blame, rather it's the shortage of policemen who are at fault."
"You might as well claim that tobacco companies don't contribute to
lung cancer because gas stations and grocery stores sell the most
cigarettes."
"Why is it that liberals, when confronted with the truth and backed by
quantifiable and verifiable data, feel that it is only necessary to
say, 'That's a lie!' in order to prove their case?"
Reader Comments:
"Your idiotic editorial seems to imply that... bank robbers aren't to
blame, rather it's the shortage of policemen who are at fault."
"You might as well claim that tobacco companies don't contribute to
lung cancer because gas stations and grocery stores sell the most
cigarettes."
"Why is it that liberals, when confronted with the truth and backed by
quantifiable and verifiable data, feel that it is only necessary to
say, 'That's a lie!' in order to prove their case?"
Jim
October 20, 2008 8:02 AM
As always, it's the cover-up that sinks people. Liberals are working
overtime to cover up their role in the mortgage meltdown. Not only did
they block attempts to reform Government Sponsored Enterprises (GSEs)
such as Fannie Mae and Freddie Mac before they could drag down our
economy, but liberals also abused the Community Reinvestment Act
(CRA), turning it into a vehicle for directing loans to unqualified
homebuyers.
The left knows that whoever shapes public understanding of what caused
today's economic crisis can shape America's politics -- and its future
-- for a great many years to come. Thus, they're pushing the notion
that too little government regulation was at fault.
If the country buys this idea, liberals can enact a carbon-copy of
FDR's response to the Great Depression, building a larger, more
activist and ever-more-controlling federal government. They can
exploit the mess by establishing a conventional wisdom that more
government is the solution, rather than understanding how big
government is a root cause of the current financial meltdown.
Claiming it all sprung from a lack of regulation is a half-truth, and
a Yiddish proverb says a half truth is a whole lie. Over-regulation
opened the money spigot by requiring lenders to make poorly
underwritten loans. Under-regulation then allowed politicians to
exploit that.
Although greed and dishonesty among both borrowers and lenders had
major roles, the CRA and the GSEs were at the heart of what happened,
setting up the now-toppled dominoes of Bear Stearns, Lehman Brothers,
and others.
Over-regulation through CRA, aided by HUD, became a huge problem and,
alas, wasn't even addressed in the multi-billion dollar bailout. The
Clinton Treasury Department's tough new regulations in 1995 compelled
the banks to engage in far-riskier lending practices or receive a
failing CRA grade. To avoid an "F" from the CRA, which could
jeopardize their viability, the banks were pressured to direct
hundreds of billions of dollars in high-risk mortgages to inner-city
and low-income neighborhoods. Moreover, under CRA pressure, banks
would "hire" radical, non-profit groups like ACORN to find them
customers. Once trillions of dollars began to flow, politicians and
lobbyists tapped into this stream, and so did left-wing activist
groups.
According to George Mason University's Russell Roberts, the CRA was
buttressed by other new regulations during the Clinton Administration.
As Roberts writes, "For 1996, the Department of Housing and Urban
Development (HUD) gave Fannie and Freddie an explicit target -- 42
percent of their mortgage financing had to go to borrowers with income
below the median in their area. The target increased to 50 percent in
2000 and 52 percent in 2005.
For 1996, HUD required that 12 percent of all mortgage purchases by
Fannie and Freddie be "special affordable" loans, typically to
borrowers with income less than 60 percent of their area's median
income. That number was increased to 20 percent in 2000 and 22 percent
in 2005. The 2008 goal was to be 28 percent."
The banks were kept from rebelling by using Fannie Mae and Freddie
Mac's deep pockets to buy these poor-quality loans and take them off
the banks' books.
Under-regulation of the GSEs -- Fannie Mae and Freddie Mac -- allowed
the money stream to widen and keep flowing. There has always been an
implicit understanding that taxpayers would cover GSE losses and this
enabled them to attract money and pour it into the CRA-induced sub-
prime market. The Bush Administration had warned about this for years.
Fannie and Freddie, however, could skim enough to pay for political
protection, plus pay sky-high executive salaries and bonuses to well-
connected political figures.
Over the past decade, Fannie and Freddie combined to spend a reported
$200 million on lobbying and campaign contributions. Now bailing them
out may cost taxpayers $200 billion directly, and far more indirectly.
The circle of political back-scratching centered around the theme of
affordable housing, which the GSEs marketed heavily. Politicians
wanted housing for low-income and poor credit risks, so they used
Fannie and Freddie to further that objective, and the GSEs responded
with campaign help for those politicians.
In return, politicians resisted reforms. This was demonstrated at a
2004 House hearing, where Rep. Maxine Waters (D.-Calif.) denounced
attempts to stiffen oversight and regulation of this duo "so as not to
impede their affordable housing mission, a mission that has seen
innovation flourish, from desktop underwriting to 100 percent loans."
"Desktop underwriting" meant undocumented loans. No proof of income or
credit history required. And zero down payment.
Members of both parties were involved in protecting the system. But
liberal Democrats were the dominant force.
Recently, House Financial Services Chairman Barney Frank (D-Mass.)
told The Boston Globe, "[Republicans'] failure to regulate sensibly …
endangered the economy and … burdened it with bad stuff.… Their own
philosophy blew up in their face. They were so extreme in their
insistence that there be no government intervention that they have
wound up provoking far more government intervention than the Democrats
ever would have."
But Frank is covering up his own role because he sang a far different
tune in 2003, when the Bush Administration and many Republicans
(including Sen. John McCain) tried to require Fannie and Freddie to
comply with Securities and Exchange Commission regulations and other
additional oversight requirements. Treasury Secretary John Snow, in
fact, had specifically warned Congress that Fannie and Freddie needed
a new supervisory structure so that both institutions would "maintain
capital and reserves sufficient to support the risks that arise or
exist in its business."
Rep. Frank was unconcerned. He told a hearing, "Fannie Mae and Freddie
Mac are not in a crisis." Rather, he said, they were "fundamentally
sound," and criticisms of them were unjustified exaggerations and
"disaster scenarios." Then he confirmed why: "The more pressure there
is [to regulate] then the less I think we see in terms of affordable
housing"
He wanted to continue both the giveaway train supplying mortgages to
those who couldn't afford them and the gravy train for politicians.
This appealed to liberals and in particular to the Congressional Black
Caucus, which received six-figure support from both Fannie and Freddie
in 2007.
The GSEs' major campaign largesse went to well-placed friends in key
positions. The top six from 1998 thru 2008, according to the Center
for Responsive Politics:
Sen. Chris Dodd (D.-Conn.) $165,400
Sen. Barack Obama (D.-Ill.) $126,349
Sen. John Kerry (D.-Mass.) $111,000
Sen. Robert Bennett (R.-Utah) $107,999
Rep. Spencer Bachus (R.-Ala.) $103,300
Rep. Roy Blunt (R.-Mo.) $ 96,950
And almost everyone in Congress got something.
The GSEs lobbied hard, too. Their combined lobbying budget averaged
$17 million a year. As described by Rep. Chris Shays (R.-Conn.), "They
hire every lobbyist they can possibly hire. They hire some people to
lobby and they hire other people not to lobby so the opposition cannot
hire them."
But friends at the top were not enough. They needed them in every
community, too. The Community Reinvestment Act guaranteed a steady
stream of low-quality, but highly political, loans.
Congress passed the CRA in 1977 to combat "redlining," a lending
practice that prevented loans to minority communities.
Clinton Administration regulations in the '90s added teeth to CRA,
requiring banks to show compliance with meeting low-income loan
targets or face civil actions that could assess a $500,000 penalty for
each violation. Banks were "encouraged" to comply by hiring community
groups (including ACORN) who contracted with financiers to steer low-
income applicants to their institutions.
As the Manhattan Institute's Howard Husock wrote in 2000: "The Senate
Banking Committee has estimated that, as a result of CRA, $9.5 billion
so far has gone to pay for services and salaries of the nonprofit
groups involved." The left created the system that paid its community
organizers very handsomely, thanks to the regulations on the financial
community.
As The Heritage Foundation's J.D. Foster recently noted, "While a
worthy cause, the net effect [of CRA] is often to encourage loans at
lower credit standards and to encourage people to buy houses they
really cannot afford."
The net effect has also brought the economy to the brink of disaster.
But unless the American public is told, re-told, and educated about
how we got here, there won't be reform of the bailed-out-but-still-
alive GSEs nor of the CRA. Then we would witness more big government,
giving us far more help than we can afford.
John Locke
September 29, 2008 5:59 PM
The Democrats are completely responsible for the collapse - Why don't
you post all of the facts? You are an Obama supporter and part of the
problem. If you post this (I would be suprised) viewers can go to
expose obama dot com and see all of the facts in the second video.
Bush tried to stop this insanity but the democrats stopped it - Also
McCain was involved in trying to stop this collapse as well.
Chuck Cardiff
September 29, 2008 7:30 PM
Nobody made loans "under the CRA program" CRA is not a loan program.
It sets numerical targets for lending by location, race, and
ethnicity. CRA often required lending to uncreditworthy persons to get
a satisfactory CRA rating, and it did indeed cause Freddie and Fannie
to take on huge amounts of dreck. "The chief executive of Countrywide
Financial, the nation's largest mortgage lender, is said to have
'bragged' that in order to approve minority applications, 'lenders
have had to stretch the rules a bit.'" See
http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Criticism and
references thereto.
Robert Walker
September 29, 2008 8:05 PM
All pressure to reduce vetting of loan qualification has the
Cumulative effect of weakening the probability for loan
repayment.Pointing out there were perhaps more
poorly issued loans than what CRA motivated does not lessen the
importance of improving the loan quality discussion.
Augustus
September 29, 2008 10:11 PM
There never were laws that would prevent lenders from making bad
loans. Nothing was deregulated by the Bush Administration in that
regard. Lenders did their best to not make bad loans.
Then the Clinton Administration rewrote the CRA to REQUIRE loans be
made to low credit quality borrowers. And engaged FNMA and FRE to buy
these loans.
In order to make loans and homes more affordable for lower income
borrowers the unusual loan products were developed. Interest only,
Option ARM, and the low teaser rate products were answers to helping
people who did not otherwise qualify get a home, as REQUIRED by CRA.
These low standards for qualification were applied to everyone who
wanted a mortgage.
Credit Default swaps are insurance for bonds. I buy insurance on most
of my assets. Insurance is available for equity investments through
the options market. The end result is that it can make the investment
much more sound.
The problem developed when CDS written on the pools of home loans were
found to be badly mispriced. Why? The borrowers did not meet the
historic standards of the homeowner of the past. It was not the CDS
market that caused the problem, it was the terrible result of the low
underwriting standards and the high default rates that brought on.
Wayne Berner
September 30, 2008 12:54 AM
Sir, It is not a law from 1977 (Jimmy Carter) that created the problem
but rather what Mr. Clinton did to it in the 90's that caused the
problem. Please read the following article from the year 2000 "The
Trillion-Dollar Bank Shakedown That Bodes Ill for Cities" by Howard
Husock
http://www.city-journal.org/printable.php?id=477
It appears that Mr Husocks vision has come true! Also there are
related CRA articles talking about Coutrywide earmarking over $600
billion in sub prime loans in 2003!! Also add the following article
from 1993 "Clinton Plan Would Soften Banking Rules" By JOHN H. CUSHMAN
JR.,
Published: March 10, 1993
Now I would suggest you do a little more research, before you write
speeches for Ms. Pelosi!
Dave
September 30, 2008 3:08 AM
This article is a joke, right?
adoseoftruth
September 30, 2008 8:10 AM
This article is incorrect in its premise.
In early 1993 President Bill Clinton ordered new regulations for the
CRA which would increase access to mortgage credit for inner city and
distressed rural communities. The new rules went into effect on
January 31, 1995 and featured: requiring strictly numerical
assessments to get a satisfactory CRA rating; using federal home-loan
data broken down by neighborhood, income group, and race; encouraging
community groups to complain when banks were not loaning enough to
specified neighborhood, income group, and race; allowing community
groups that marketed loans to targeted groups to collect a fee from
the banks.
The new rules, during a time when many banks were merging and needed
to pass the CRA review process to do so, substantially increased the
number and aggregate amount of loans to low- and moderate-income
borrowers for home loans, some of which were "risky mortgages. Banks
set up CRA departments, a CRA consultant industry was created and new
financial-services firms helped banks invest in packaged portfolios of
CRA loans to ensure compliance. Established and new community groups
began marketing such mortgages. The Senate Banking Committee estimated
that as of 2000, as a result of CRA, such groups had received $9.5
billion in services and salaries. As of that time such groups also had
received tens of billions of dollars in multi-year commitments from
banks, including ACORN Housing $760 million; Boston-based Neighborhood
Assistance Corporation of America $3 billion; a New Jersey Citizen
Action-led coalition $13 billion; the Massachusetts Affordable Housing
Alliance $220 million. The number of CRA mortgage loans increased by
39 percent between 1993 and 1998, while other loans increased by only
17 percent.
The CRA was public policy that DROVE the market. To cast a blind eye
that obvious econic fact and simply blame "the profit motive" is
ludicrous.
It is equally ludicrious to blame Wall Street and investment banks
when what they did was buy up the risky mortgages that became so
prevelant in the market place.
Granted, no one intened to lose money, but, to lay blame on capitalism
when the real source of the problem was government in the first place
indicates to me a fundamental lack of economic understanding.
Mike
September 30, 2008 8:37 AM
This is a ridiculous article that shows a complete lack of critical
analysis and honest review.
Michael Barr himself wrote about the CRA:
---
At its core, CRA helps to overcome market failures in low-income
communities. By
fostering competition among banks in serving low-income areas, CRA
generates larger volumes
of lending from diverse sources, and adds liquidity to the market,
decreasing the risk of each
bank’s loan. Encouraged by the law, banks and thrifts have developed
expertise in serving low-
income communities, and they have created innovative products that
meet the credit needs of
working families and low-income areas with manageable risks.
---
Why do you think subprime mortgages went from 1% of all mortgages
issued to 12% within THREE years of the Clinton Administration adding
new teeth to the CRA (in 1995)????
Maybe, just maybe, the subprime explosion occurred because, as
professor Michael Barr says:
"By fostering competition among banks in serving low-income areas, CRA
generates larger volumes
of lending from diverse sources, and adds liquidity to the market,
decreasingaff the risk of each
bank’s loan. "
Maybe all these thrifts started giving out subprime mortgages because
of all the liquidity that the CRA pumped into the subprime lending
industry.
kritarchist
September 30, 2008 8:39 AM
Doofus. Competition made them lend. The CRA and the GSEs put into
place protected agencies that provided the environment for loose
mortgages. The Fed provided the money, the CRA and GSEs provided the
competition. Nature took care of the rest.
dana reed thurston
September 30, 2008 9:18 AM
Completely disingenuous and politiaclly coloured view of the CRA and
the havoc it wrought. Once the ball got rolling with CRA supervised
banks making bad loans with no repurcussions and a way to bundle those
bad loans up for sale so that they had more money to loan, the Ponzi
scheme began in earnest. If people watch while banks do something that
is completely against logic yet still works, they are going to go mad
for it. And as with all good Ponzi schemes, the money keeps getting
pumped into the scheme until no more takers can be found or the
participants realise that the upper floors of the scheme are being
constructed with material scavenged from the ground floors.
The CRA forced banks to reinvest in the poorer areas where they were
taking deposits. The CRA made the loans. The world didn't end. But
eventually the cracks showed in the dam but those cracks were covered
over instead of repaired.
If Fannie Mae and Freddie Mac were so sound, how did they collapse I
ask?
Bob Gardner
September 30, 2008 9:18 AM
Mr Pressman is way off base. I was a bank director when sub prime
lending was forced on us by the CRA act. Where did we finally wind up
dumping these liabilities (called credits on our balance sheet)? It
was the start of the process that eventually led to the mess we have.
Every story has a beginning, and the beginning of the sub prime mess
is CRA!
Tom Phillips
September 30, 2008 9:38 AM
Let me get this straight. The CRA forces banks to lend to subprime
borrowers and it had nothing to do with the subprime crisis?
William Fraind
September 30, 2008 9:48 AM
You are referring to mortgage brokers who have no risk in lending
money under the CRA. The more they loaned, the more they made. They
were able to do this because of the loosened wording of the revised
CRA, changed by Bill Clinton in 1995. You are doing a serious
injustice by posting such a "smokescreen" over the facts. They kept
lending, Fannie and Freddie made money as they securitized those
mortgages and sold them off. They made money too. The investors were
left holding the worthless bag.
dana reed thurston
September 30, 2008 9:53 AM
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
Chuck Cardiff
September 30, 2008 10:01 AM
"The U.S. Department of Housing and Urban Development's mortgage
policies fueled the trend towards issuing risky loans. In 1995, Fannie
Mae and Freddie Mac began receiving affordable housing credit for
purchasing mortgage bank securities which included loans to low income
borrowers. This resulted in the agencies purchasing subprime
securities. Subprime mortgage loan originations surged by a whopping
25 percent per year between 1994 and 2003, resulting in a nearly ten-
fold increase in the volume of these loans in just nine years. As of
November 2007 Fannie Mae a held a total of $55.9 billion of subprime
securities and $324.7 billion of Alt-A securities in their portfolios.
As of the 2008Q2 Freddie Mac had $190 billion in Alt-A mortgages.
Together they have more than half of the $1 trillion of Alt-A
mortgages.[82] The growth in the subprime mortgage market, which
included B, C and D paper bought by private investors such as hedge
funds, fed a housing bubble that later burst."
See http://www.washingtonpost.com/wp-dyn/content/graphic/2008/06/10/GR2008061000059.html
and http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Government_Policies
Note this was all related to Mr. Clinton's ingenious changes to the
CRA in 1995.
I suggest Mr. Pressman try doing a little research before he writes.
Robert NYC
September 30, 2008 10:09 AM
check your facts. The CRA tweak of 1995 made sub prime mortgages able
to be collateralized. This Clinton initiative allowed firms outside
fannie and freddie to issue the sub-prime crappy paper and then sell
IT OFF THEIR BOOKS. This ability to pass it on resulted in A LOT more
sub prime paper. Without the demand for the sub prime paper that was
created by the CRA revision in 1995 private lenders would have issued
very little of it as they would have had to keep it on their own
books.
Demand for sub-prime was created by the CRA.
craig
September 30, 2008 10:19 AM
You didn't even mention the significant changes made to the CRA in
1995 which essentially created the sub-prime mortgage market - or at
least made it a much more attractive option for lenders. Combined with
the rock-bottom interest rates (also federally impacted) following the
stock bubble, a perfect storm was created for poor lending. How could
you leave that out?
Mike Primorac
September 30, 2008 10:20 AM
wrong bill....see Gramm-Leach-Bliley Act. Your answers are there.
Cameron Michaels
September 30, 2008 10:25 AM
The author of this article over-simplifies a rather complex
discussion. Yes, the act alone did not cause the problem, but the
question is, did it contribute to the problem?
GG
September 30, 2008 10:30 AM
Surely you joke? Subprime lending along with CRA, overbuilding of
McHouses that ppl didn't need (2500sq ft for family of 3 or 4?) - Bill
S-190 to try to regulate Fannie and Freddie that was blocked by the
Dems? Chris Dodd, Jim Johnson, Franklin Raines, all getting sweetheart
deals - along with Obama and the Fannie Mae Contribution 4 times more
for Obama.
All MAIN STREETS lead to Wall Street - all monies were stolen by dirty-
handed lawyers and their buddies. Most are Democrats and I'm tired of
their underhanded lies. Opensecrets.org should be a starting point
for Americans seeking truth.
Lucas Kanavati
September 30, 2008 10:35 AM
I am quite certain that your claims of the Bush Administration
reducing the CRA enforcement had very little to do with our current
situation.
Please read the article via the link below. The article was published
in September of 2003. Are you certain that Bush was unaware or
inactive of the issues with lending across the country, specifically
with financial institutions leveraging themselves out of business? Mr.
Barney Frank, back in 2003, stated publicly there was nothing wrong
with Fannie Mae and Freddie Mac. Odd that Mr. Frank, along with the
Clinton appointed heads of Fannie and Freddie, chose to ignore the
issues the Bush Administration attempted to fix.
http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63
tom
September 30, 2008 10:50 AM
You must have your head in the sand if you believe for one minute that
the CRA did not have a major role in the housing crisis we now face
today. Subprime and substandard loans created this problem. Liberal
guilt forced banks into these types of loans. Pull your head out.
MidpointMan
September 30, 2008 10:51 AM
Ha! You are a hack.
CRA CHANGES IN 1995 INVENTED SUBPRIME MORTGAGE SECURITIES!
Read what Democrat Robert Litan at Brookings has to say about it. He
disagrees.
Why did you miss him? You thrive in ignorance.
Juan
September 30, 2008 10:58 AM
How can you say that this piece of legislation didn't contribute to
the problem? I think that is a little ridiculous. Of course it
contributed! As did the new wave of complex of Wall Street instruments
that were used to package the bad loans. I think it is naive to think
that the CRA didn't play a role in this. Even if 50% of the loans
originated under CRA supervision, I think this would cause a
significant impact.
wow
September 30, 2008 11:13 AM
Wow, you're absolutely wrong.
http://cei.org/cei_files/fm/active/0/Michelle%20Minton%20-%20CRA%20-%20FINAL_WEB.pdf
Justin
September 30, 2008 11:23 AM
Aaron Pressman, you are conveniently ignoring the fact that, in early
1993 President Bill Clinton ordered new regulations for the CRA which
would increase access to mortgage credit for inner city and distressed
rural communities. The new rules went into effect on January 31, 1995
and featured: requiring strictly numerical assessments to get a
satisfactory CRA rating; using federal home-loan data broken down by
neighborhood, income group, and race; encouraging community groups to
complain when banks were not loaning enough to specified neighborhood,
income group, and race; allowing community groups that marketed loans
to targeted groups to collect a fee from the banks. The number of
risky loans subsequently went up dramatically, and the real estate
bubble was on its way. The problems became apparent when the bubble
burst and home prices declined. Then the risky sub-prime loans started
to default. Maybe the original CRA wasn't so much to blame, but the
1995 revision certainly was. So please try to consider ALL of the
facts, not just those which support your narrow-minded views.
Mike
September 30, 2008 11:26 AM
Technically your right Mr. Pressman, the CRA did not cause the crisis,
but it was the catalyst for greed and corruption that did. That's just
this know nothings opinion of course. I guess I need to be come
liberal law professor to have any credibility eh? So your point was
it's all Bush's fault? Of course. Did you write this article in
response to this btw? http://www.youtube.com/watch?v=NU6fuFrdCJY
Pepe Pingu
September 30, 2008 11:43 AM
Here we go with the kool-aid partisanship. Why would I believe a
washed-out business reporter who could not make it in the real world
of business? Keep up the good work pencil pusher, I guess the truth
will continue being hidden and manipulated in the back rooms of the
media.
John
September 30, 2008 11:45 AM
This is clearly not as cut and dry as this issue would have you
believe. Bill Clinton himself stated on Good Morning America last week
that the Democratic party is guilty of not listening to and accepting
legislation by Republicans regarding this crisis. The power of the CRA
was cut back by Bush because of all the provisions set forth by the
Clinton administration. If there weren't all the loans made then then
the changes wouldnt have been necessary now.
Can we not read news that is neutral anymore?
mf64
September 30, 2008 11:56 AM
Read article by professor of economics Stan Liebowitz and use your
logic.
http://www.nypost.com/seven/09242008/postopinion/opedcolumnists/house_of_cards_130479.htm
Dave
September 30, 2008 12:11 PM
"Most subprime loans were made by firms that aren’t subject to the
CRA."
Yes but that does not mean that lending institutions that are subject
to the CRA are without fault. They too wrote billions of dollars worth
of loans that defaulted.
This is just another Bush/Republican hit piece designed to prop up the
Democrats. In reality the CRA forces institutions to loan to people
that are a credit risk.
ChiTe
September 30, 2008 12:32 PM
In early 1993 President Bill Clinton ordered new regulations for the
CRA which would increase access to mortgage credit for inner city and
distressed rural communities. The new rules went into effect on
January 31, 1995 and featured: requiring strictly numerical
assessments to get a satisfactory CRA rating; using federal home-loan
data broken down by neighborhood, income group, and race; encouraging
community groups to complain when banks were not loaning enough to
specified neighborhood, income group, and race; allowing community
groups that marketed loans to targeted groups to collect a fee from
the banks.
WIKI CRA
'what do you say about this? Clinton using CRA to encourage more
lending. Wall Street needing to meet quotas lend more to poor credit
people so it can lend even more to normal credit people.
Go Ron Paul,
ChiTe
smays
September 30, 2008 12:54 PM
Of course the CRA contributed to this mess! Anyone unjaded by
political ideology can see that making increasingly riskier loans to
more people who were less and less qualified contributed... because
afterall, when you get down to it the cause of this crisis was
excessive mortgage defaults. CRA and other laws created an environment
in which 'no-docs' and 'stated income' were admissible as proof of
creditworthiness, and greatly reduced downpayments were allowed. Sure,
during the 90s, when mortgage access was increased, there weren't as
many foreclosures because the market was going up, up, up. But no run-
up lasts forever. Did no one consider what would happen to 120%+ LTV
loans when the market topped? Did the legislators? Did the homeowners?
No. So let's ease up on the class warfare and anti-Capitalism
rhetoric, because K Street and Main Street are just as much to blame
as Wall Street... and unless we get a functional bail-out, all streets
will suffer greatly.
Jared T.
September 30, 2008 1:01 PM
Aaron, you're making perfect sense now. Obviously Jeffrey Miron is a
"know-nothing," I mean he only got his Ph.D. in Economics from MIT,
and is Senior Lecturer and Economist at Harvard University. Know-
nothing.
I suppose the other 166 academic economists who wrote Congress are
also, just nothing more than, "know-nothings." You're right on the
ball with this, buddy.
dave
September 30, 2008 1:19 PM
You're right that the CRA itself isn't to blame. It leads by a bad
example, for sure, but it was weakening. Fannie and Freddie though,
were created to allow people who couldn't otherwise afford mortgages
to get them. The GSE's were designed to absorb more risk than a bank
would be able to keep on it's balance sheet. That created, I know it's
hard to believe, years ago, the start of the climate of opinion that
people were somehow entitled to own a house, and being able to afford
it was secondary. Americans have the right to a lot of things, but a
house or a mortgage isn't one of them. I saved my pennies until I
could put 20% down, and I made sure as hell that I wasn't going to buy
out of my range. If people didn't expect that a multi-hundred thousand
dollar burden on their personal endebtedness was simply a right of
passage, we wouldn't have had people out there getting what they
couldn't afford. If I had thought the government might help me pay off
my mortgage, gee, I'd have bought a bigger house. Yes, the lenders are
probably even MORE to blame than the borrowers, as they were somehow
able to unload mortgages in security form to people who knew the math
didn't work out. But when ultimately, the bad debt could be assumed by
Fannie and Freddie (who were thought to be government backed) people
made decisions they would not have without them as 'options.' If it
was YOUR balance sheet on the line, categorically, with no chance of
some other entity being able to take it from you, even when the math
wasn't kosher (like the two GSE's would do) then you'd do much better
to ensure that you're only buying and issuing loans to people who will
be paying them back.
Mike
September 30, 2008 1:40 PM
This article is a bald faced lie.
It claims that the lenders are not complaining about the CRA, when in
reality they have:
http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm?page=0
Countrywide CEO said that his company did what the government
regulations asked.
The CRA's disastrous effect on the banking sector was predicted EIGHT
years ago:
The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
Winter 2000
http://www.city-journal.org/html/10_1_the_trillion_dollar.html
And you call yourself a business magazine?
mike in va
September 30, 2008 2:02 PM
This article is misleading. A reduction in mortgage loan underwriting
standards that started with the CRA is indeed a major contributor to
the current situation. "University of Michigan law professor Michael
Barr testified back in February before the House Committee on
Financial Services that 50% of subprime loans were made by mortgage
service companies not subject comprehensive federal supervision and
another 30% were made by affiliates of banks or thrifts which are not
subject to routine supervision or examinations. " While this sentence
is true on it's face it is misleading. Loans were not "made" by these
companies, they were originated by these companies. A lending
institution funded the loan or bought a package of these types of
loans from the orginiation companies. Yes, they orgiginated a lot of
crap, but as long as they were able to sell the crap to FNM and FRE
they had no incentive to tighten standards. The standards themselves
were set low by the government engcouraging sloppy behavior.
"Malinvestment" is the current economic term for this, brought on by
government interference in the housing market. The politicians bought
votes with bad policy, covered up problems as they arose, and are now
asking the citizens of the country to bail out the bankers that
foolishly underwrote or purchased these securities. All in the name of
progess, growth, and political correctness. Abolish the Fed, the
private U.S. banking cartel.
russ
September 30, 2008 2:20 PM
"Ellen Seidman, who headed the Office of Thrift Supervision in the
late 90s, has written several fact-filled posts about the CRA
controversey, including one just last week"...
This is just total B.S.!
Here's someone who during the Clinton administration obviously didn't
do her job and you are claiming she supposedly cranked out a fact
filled load of noise to hide the fact that the Democrats brought this
onto the country...
Are YOU joking?
Bill Andersen
September 30, 2008 2:32 PM
Mr. Pressman,
At least two people disagree with you. Myself, and this guy
http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html
george
September 30, 2008 2:59 PM
This is an apology piece, with several specious arguments. The CRA
gave the green light to larger banks, and required them to lend to
less qualified borrowers, even if normal standards had to be bent. Do
you seriously believe that smaller mortgage companies would not be
affected by such a policy (even if it did not, technically apply to
them)? To compete, the smaller lenders would relax their standards -
and then some. Also, you act as if nothing happened after 1977 until,
suddenly in 2004, things went haywire. You left out the relaxation of
standards pushed during the Clinton years. And, the statement that the
Bush admin. weakened enforcement simply flies in the face of reality.
In 2004 Bush and several Republicans, including McCain, pushed for
tougher enforcement standards - against the opposition of Dems.
Bill
September 30, 2008 3:57 PM
CRA is documented as having pressured banks to make loans to those
without downpayment or proof of income to make payments so your
article is not in whole truthful. Now those poor souls are losing
their homes that they could never have afforded but were led to hope
they could. The poor are no better off than before and CRA should be
shut down and have other agencies that truly help the poor meet the
need.
The biggest reason for it to continue is to promote the DNC. The
biggest part of CRA is ACORN the division that has been involved in
voter fraud for at least 10 years and has cases of fraud in 12 states
this election alone. Many Americans don't like strong arm thugs taking
away the value of 1 person 1 vote basis that make our elections unique
in the world.
bjl
September 30, 2008 4:07 PM
fact: democrats blocked a mccain co-sponsored bill to regulate Mae &
Mac where by Barney Frank(d) replied, "if you put pressure on them,
the harder it will be to have affordable housing"
fact: Mae & Mac went under along with 28 depository banks so far in 08
alone, and only 10 more since 2000.
http://www.fdic.gov/bank/individual/failed/banklist.html
Miike
September 30, 2008 4:12 PM
Government meddling distorted the mortgage markets by encouraging
risky loans. You cannot be serious when you say Fannie and Freddie and
their Democrat protectors, that enabled this mess, share none of the
blame.
Media Watchman
September 30, 2008 4:18 PM
I believe that the Congress (not regulating Fannie and Freddie's
appetite, financial statement misstatements, and irresponsible
increase in mortgage applications while they were just getting out of
investigation of Financial Statement & Accounting scandals),
Administration (for not pushing harder for curbing Fannie and
Freddie's appetite for bad loans), Lenders (unscrupulous like
Countrywide for using a NO-DOC credit score and employment only
qualification), and Wall Street (expecting a return on secured
property that has fluctuated in value in the history of home prices)
all had a hand in this mess...
Just a few thought from Wiki Pedia...
In 2002 there was an inter-agency review of the effectiveness of the
1995 regulatory changes to the Community Reinvestment Act and new
proposals were considered.
The Federal Deposit Insurance Corporation (FDIC), the Board of
Governors of the Federal Reserve System, and the Office of the
Comptroller of the Currency put new regulations into effect September
of 2005. The regulations were opposed by a contingent of Democrats.
Federal Reserve chairman Ben Bernanke has stated that an underlying
assumption of the CRA – that more lending is always better for local
communities – is questionable.
Economist Stan Liebowitz notes that the Fannie Mae Foundation singled
out Countrywide Financial as a "paragon" of a nondiscriminatory lender
who works with community activists, following "the most flexible
underwriting criteria permitted." The chief executive of Countrywide
is said to have "bragged" that in order to approve minority
applications, "lenders have had to stretch the rules a bit."
Countrywide's commitment to low-income loans had grown to $600 billion
by early 2003.
Question to Business Week:
Who developed and supported the software Desktop Underwriting (DU)?
(It is predominantly used to pre qualify borrowers - if they pass the
software check, they are ok and Fannie/Freddie would buy the loan.)
Business Week: How many loans were made approved by DU and now are
bad?
How many loans made by Countrywide were bad loans?
Looks like you cherry picked wikipedia comments - Ellen Seidman’s and
others and are showing just one side of the issue. I believe that
Business Week may be owned by someone who doen’t want to challenge
truth and wants to detract from the “real possibility” that the CRA
DID have a hand in this mess…why don’t you also investigate ACORN and
NACA and their terroritstic operations to fore institutions to make
bad loans? Bruce Marks may not like an investigation….unless it’s from
the “fair and balanced” investigation from the Business Week - right!
And doesn’t Business Week want to ask those tough questions that
President Bush asked in 2003 of Fannie and Freddie:
New York Times article written by Stephen Labaton and published on
September 11th, 2003: The Bush administration today recommended the
most significant regulatory overhaul in the housing finance industry
since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new
agency would be created within the Treasury Department to assume
supervision of Fannie Mae and Freddie Mac, the government-sponsored
companies that are the two largest players in the mortgage lending
industry.
The new agency would have the authority, which now rests with
Congress, to set one of the two capital-reserve requirements for the
companies. It would exercise authority over any new lines of business.
And it would determine whether the two are adequately managing the
risks of their ballooning portfolios.
When I finally reach a definitive study on why the meltdown of the
home loan fiasco causing this “blip” on the economic video monitor, I
will be right that it wasn’t just one person involved that caused this
issue, it was a bunch of people thinking they were smarter than
reality.
Bo
September 30, 2008 4:53 PM
This article is very one sided and doesn't go into how many people in
DC tried to reign in Freddie Mac.
I do not see the purpose of bashing Bush - it solves nothing. I would
expect a more thorough article by BusinessWeek what showed how many
people in DC saw this, tried to pull the plug on Freddie Mac, yet were
met with opposition. Furthermore, nearly 50% of the bad loans out
there fell under the Community Reinvestment Act and they were
guaranteed by Freddie Mac.
I suppose supporting a political agenda is more important than
revealing the truth.
Pitchfork
September 30, 2008 4:54 PM
Fannie and Freddie took reckless chances because there was no
downside. They bought up half the mortgage securities in the country
for petesake.
And they donated generously to the politicians who protected them,
with Barney Frank and Barack Obama their biggest beneficiaries.
Telling the truth is only "political" if it's the ugly truth about
corrupt liberals.
VictoriaJ
September 30, 2008 5:34 PM
Good try; but there are too many past date articles that prove
otherwise.
See:
http://query.nytimes.com/gsVfullpage.html?res:9C0DE7D8153EF933A0575AC0A96F95826
NY Times - Fannie Mae Eases Credit To Aid Mortgage Lending
written Sept 30, 1999
Kevin
September 30, 2008 5:35 PM
Wow, are you ever wrong about this.
Calling people "know nothings" when they know more than you do is
shameful. How about getting all the facts before having an opinion?
Isn't that what "journalists" are supposed to do?
First of all, the CRA was significantly expanded in 1995 by the
Clinton administration. They made fundamental changes to the 1977 law
which - in effect - created a whole new industry of CRA "compliance"
groups which were effectively community agitation groups (like Obama's
ACORN). Their job was to complain when banks didn't lend enough in low-
income communities, and they could even get in on the game by
providing "consulting" services and marketing the loan packages.
These groups could effectively blackmail the banks by saying "loan
more to our low-income community or we will agitate, threaten your CRA
rating, and put your bank charter at risk."
As of 2000, these agitating groups were collecting upwards of $9.5
billion (yes, with a "b") in services and salaries. These groups -
again, like ACORN - then focused efforts on "voter education" and "get
out the vote" drives to elect - you guessed it - more liberals who
would support CRA, Fannie and Freddie and keep the gravy train going.
From 1993 to 1998, CRA low income loans grew at more than twice the
rate of ordinary mortgage loans.
Second, over time, the dangerous nexis between liberal social
engineers and Fannie/Freddie got more and more dangerous.
Congressional supporters of "low income housing" pressed for weaker
and weaker credit standards, and used their "oversight" of Fannie/
Freddie to make it happen.
Third, after the Fannie/Freddie accounting scandals of 2003-2004 which
rivalled Enron, the gig was almost up as Bush and Republicans
attempted to put real oversight onto the GSEs.
Oversight was defeated by Fannie/Freddie with an unprecendented
lobbying effort, massive campaign contributions, and promises of even
MORE "low income lending" (i.e., bad loans) to their Congressional
toadies (i.e., Barney Frank and the Congressional Black Cacusus.
That was the last straw.
Fannie/Freddie effectively put out the word that they would buy
virtually any loan that anyone could write. In return for standing
firm AGAINST congressional oversight, their congressional sponsors
were rewarded with looser standards to promote low-income housing.
Don't you get it???
And to your point, it doesn't matter who "makes" the loan; the only
thing that matters is who BUYS the loans.
When Fannie/Freddie are buying any piece of s*** that any mortgage
lender could write, lenders would be throwing money away to not write
any loan they could convince any poor, illiterate sap to take.
The result? Subprime mortgages grew from <8% in 2003 to over 20% in
2006.
All thanks to Fannie/Freddie, as payback to their congressional, fully-
paid-off supporters who demanded more low income housing.
Top of the list? Barack Obama. Barney Frank. And all their friends.
The list is public.
This was absolute institutional corruption. Fannie/Freddie made
"private" profits based on their "public" debt guarantee, gave huge
contributions to congress to avoid oversight (although they are
public, they are exempt from SEC Public Company oversight including
public disclosures AND Sarbanes-Oxley) and allow them to make high
risk investments in "low income housing" with taxpayer money.
It's also absolutely true that the easy money policies of the post
9/11 Fed contributed to this also. The negative real interest rates of
these times strongly incentivized people to borrow.
But with reasonable underwriting standards and prudent risk
management, it would never have gotten there.
CRA and Fannie/Freddie were promoted and put into place by the same
people to the same effect. More low-income home ownership at the price
of enormous risk and a bubble whose popping may yet bring down to it's
knees the greatest economy in the history of the world.
Get your facts straight.
Bill
September 30, 2008 5:41 PM
CRA is documented as having pressured banks to make loans to those
without downpayment or proof of income to make payments so your
article is not in whole truthful. Now those poor souls are losing
their homes that they could never have afforded but were led to hope
they could. The poor are no better off than before and CRA should be
shut down and have other agencies that truly help the poor meet the
need.
The biggest reason for it to continue is to promote the DNC. The
biggest part of CRA is ACORN the division that has been involved in
voter fraud for at least 10 years and has cases of fraud in 12 states
this election alone. Many Americans don't like strong arm thugs taking
away the value of 1 person 1 vote basis that make our elections unique
in the world.
Mark Utnehmer
September 30, 2008 6:22 PM
You are full of of ..it.
Clinton Administration Changes of 1995
In early 1993 President Bill Clinton ordered new regulations for the
CRA which would increase access to mortgage credit for inner city and
distressed rural communities.[5] The new rules went into effect on
January 31, 1995 and featured: requiring strictly numerical
assessments to get a satisfactory CRA rating; using federal home-loan
data broken down by neighborhood, income group, and race; encouraging
community groups to complain when banks were not loaning enough to
specified neighborhood, income group, and race; allowing community
groups that marketed loans to targeted groups to collect a fee from
the banks.[3][4]
The new rules, during a time when many banks were merging and needed
to pass the CRA review process to do so, substantially increased the
number and aggregate amount of loans to low- and moderate-income
borrowers for home loans, some of which were "risky
mortgages."[citation needed] Banks set up CRA departments, a CRA
consultant industry was created and new financial-services firms
helped banks invest in packaged portfolios of CRA loans to ensure
compliance.[citation needed] Established and new community groups
began marketing such mortgages. The Senate Banking Committee estimated
that as of 2000, as a result of CRA, such groups had received $9.5
billion in services and salaries. As of that time such groups also had
received tens of billions of dollars in multi-year commitments from
banks, including ACORN Housing $760 million; Boston-based Neighborhood
Assistance Corporation of America $3 billion; a New Jersey Citizen
Action-led coalition $13 billion; the Massachusetts Affordable Housing
Alliance $220 million.[3] The number of CRA mortgage loans increased
by 39 percent between 1993 and 1998, while other loans increased by
only 17 percent.[6][7]
liberty
September 30, 2008 6:53 PM
The Community Reinvestment Act was the seed planted by the likes of
Karl Marx. Twisted into a civil rights decision in the late seventies,
then pushed and reinforced into crooked law as a financial decision,
was in fact a STUPID decision. Didnt work in vietnam, didnt work in
cambodia, venezuela or cuba. These programs meant to help the people
end up hurting the people. FOLLOW THE DAMN CONSTITUTION! because its
OUR country, not theirs.
Where'c Chuck
September 30, 2008 7:11 PM
I am shocked by the lie in this article that CRA loans were made under
stricter guidelines. The big banks, like Bank of America and Wells
Fargo, were paying mortgage brokers an extra 1% of the loan amount for
bringing in loans that helped them meet the CRA requirement. In some
cases it is still going on. I used to work in a broker's office and
the bank account reps pushed it as a way for the broker to double
their commission. And it helped the bank meet their regulatory goals.
There was no extra supervision of a CRA loan. The broker's office made
more money simply because the property address fell in an area where
the bank needed to meet their regulatory obligation.
And to claim that in the 1990's, when Clinton was President, that the
subprime loans performed well is to ignore the simple fact that this
is when the bubble started. As rates remained historically low year
after year, values kept increasing beyond the ability of borrowers to
qualify. The most sinister of all programs, the neg am loan was
invented in the 1990s.
The Liberals have pushed and pushed for CRA, loan down payment,
affordable housing to show their constituency how much they care for
them. Now they are blaming Convservatives for a problem they helped
create.
Dan Spooner
September 30, 2008 7:35 PM
This guy is certainly bias and uniform. The problem is entitlement.
Not everyone is entitled to anything and everything they see. Banks
were forced to make bad loans and this problem goes further back than
the GW Bush term. There is plenty of blame to go around and it all
needs to come out in the open so these problems can be corrected and
the US can move forward.
Issues are that many people got in over their heads, living outside of
their means. Interest only loans, credit cards being offered to anyone
who would like one. I am a manager for a small company and I find it
amazing that hourly people are driving nicer cars than I have, own
flat panel large screen TVs and do not think anything of extending
themselves. "Entitlement" Who's left paying for those services and
products that they purchased on credit when in 2 years they are having
problems with a mortgage and credit cards. The house prices ran up
because everyone deserves to own a house, "Entitlement" but now that
they can't afford thier house, they are foreclosed on. We did no favor
to these people. Now the housing prices are coming back in-line to
where they were.
I am entitled to what I can afford and what I need. Nothing else.
Sisyphus
September 30, 2008 8:21 PM
"Just the idea that a lending crisis created from 2004 to 2007 was
caused by a 1977 law is silly."
No, there is nothing "silly" about it. A law's strength cannot be
intensified well after it was passed? It cannot be used to further its
goals well after it is passed?
Common Sense
September 30, 2008 9:14 PM
What about the 1995 updates to the CRA ordered by President Clinton?
Oops.
KLH
September 30, 2008 9:25 PM
You sling some "facts" around, but you can't back them up. The truth
is, CRA made it so that banks were forced to give a certain percentage
of these loans or they would not get their due. I am a realtor, and I
have some experience with the Acorn product. My buyers were encouraged
to borrow more with Acorn than any other lender in the area would let
them. They were reasonable people and were'nt comfortable with the
payment so reigned themselves in to a lower amount. Unfortunately many
starry-eyed borrowers didn't.
clay evans
September 30, 2008 9:49 PM
Hey Aaron are you a complete idiot? You have to be if you start this
article out with the title "community reinvestment act had nothing to
do with the subprime crisis", when the fact of the matter is that it
started with it. You have no understanding of economics is you think
that "bubbles" of any kind start and blow up in just three years or
so. "Bubbles" such as real estate in this case take many many years to
form and was a combination of various public policies and private
malinvestment.When you look at the facts you have to be lying to your
self. The Clinton adminstration put a lot of pressure on the financial
instutions to "lend" more money to CRA's banks and in a similar move
in 1999 he demanded that Fannie Mae lossen their lending standards in
the subprime market! 1999 Aaron , remember bubbles take time to form ,
if you don't understand that. Here is a direct quote from the New York
Times dated Sept. 30th 1999, "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." You people love to twist numbers by saying that
the majority of subprime loans that have defaulted are from non
regulated non CRA banks , but that is a misleading stat because the
two major players in this at the begining was Countrywide and Bear
Stearns.They were two major financial instutions, who, oh by the way
were some of the first to go belly up that were involved with the
genusis of this from the start under what adminstration..The Clinton
adminstration!! Its funny because between 1993 and 1998 CRA mortgage
loans increased by 39 percent between , while other loans increased by
only 17 percent.Again bubbles , you can build a straw argument that
the loans that caused this mess were delevered between 2003 and 2007
but you still can not say that the title of your silly article is
true. You need to understand that sub prime crisis is way more
complecated than you are leading your readers to believe. Stating that
the CRA had nothing to do with the crisis, when it clearly has is just
a joke!!LOL Goverment has to take responcibility for this mess and
both parties have their hands in the mess as well! Time for a
responsible pro market way out of this mess! How about a strong
Dollar? How about real change !!!
Vincent DeCastro
October 1, 2008 12:23 AM
Studies have found that CRA improved access to home mortgage credit
for low-income borrowers during the 1990s, as CRA regulatory intensity
increased.4 Between 1993 and 1999, depository institutions covered by
the CRA and their affiliates made over $800 billion in home mortgage,
small business, and community development loans to low- and moderate-
income borrowers and communities.5 The number of CRA-eligible mortgage
loans increased by 39 percent between 1993 and 1998, while other loans
increased by only 17 percent. Even excluding affiliates, banks
increased their lending to low- and moderate-income borrowers and
areas by 10 percent over this period, compared with no growth at all
for these lenders in their other markets. As a result, the share of
all mortgage lending by CRA-covered institutions and their affiliates
to these borrowers and areas increased from 25 to 28 percent.
Beverly McIntyre
October 1, 2008 6:43 AM
Please don't insult our intelligence!!! Of course this had everything
to do with what is going on today. It is not President Bush that
brought this on.
MR Kornegay
October 1, 2008 7:50 AM
Weren't banks sued by liberal interest groups & lawyers (such as Obama
[Miner, Barnhill & Galland]) for not issuing enough sub-prime loans,
which these banks knew couldn't/wouldn't be paid back? In other words,
banks were forced to make these loans or else be taken to court. Your
idiotic editorial seems to imply that, for example, bank robbers
aren't to blame, rather it's the shortage of policemen who are at
fault.
John Novick
October 1, 2008 8:11 AM
There are many reasons for the subprime mortgage crisis but to say
that the CRA had NOTHING to do with it is a stretch
Arlen Williams
October 1, 2008 9:27 AM
You know very well that this CRA gave cover for ACORN and the other
neo-Marxist organizations to extort banks into granting hundreds of
billions of dollars in bad loans.
Rick
October 1, 2008 9:50 AM
Just reading this I am amazed that you can say it wasn't caused by the
CRA. Look at what you said,
"CRA loans carried lower rates than other subprime loans and were less
likely to end up securitized into the mortgage-backed securities that
have caused so many losses, according to a recent study by the law
firm Traiger & Hinckley" If they were not secure, and it falls under
the CRA, HELLO!!!!
I guess we need to be like an ostridge, put our heads in the sand and
not deal with reality.
Viper1
October 1, 2008 10:38 AM
So, Lending money to people who could never afford to ever pay it back
is okay???
That is the most ludicrous thing I have ever heard. where the h***
does this guy think the money was ever going to come from???
Bill
October 1, 2008 11:20 AM
This is absolute drivel. It is not true.
Keith Breinholt
October 1, 2008 12:35 PM
Someone forgot to mention that 'no doc' and no verification of assets
loans were created as an extension to the CRA by Bill Clinton in
1993.
(http://clinton6.nara.gov/1993/12/1993-12-08-briefing-by-bentsen-and-
rubin.text.html)
It was this extension of the CRA that allowed banks to write 'stated
asset' and 'low doc' or 'no doc' loans.
Lenders won't finder the CRA because it allowed them to write and
leverage loans that they couldn't have otherwise.
Now, fast forward to today...
Louis
October 1, 2008 1:05 PM
Wow. You are a mouth piece for the Democratic party. Thank you for
your opnion. I'll never take BW as a serious financial magazine again.
Google "community reinvestment act 1995". Jeez... what a tool.
Eric G
October 1, 2008 1:29 PM
God, what a stupid article.
Fannie Mae is a disaster and you defend it.
God. what propaganda.
Liberals are circling the wagons defending their big gov programs.
Fred Ziffle
October 1, 2008 2:48 PM
Who is more sophisticated? The loan company or the person borrowing?
Who has more tools to do the evaluation? They can tell if you had
cornflakes or eggs, but they can't provide good support for Joe
average who typically gets a large housing loan every 10 years? Yes,
if you borrow, you are responsible. If you make the loan you are
responsible.
It is certainly a combination of all of the discussion. We culturally
"buy the biggest house you can afford" and the companies invest the
most money they can and try to make more...
Brian
October 1, 2008 5:04 PM
"To meet there CRA goals, many of the big national banks, like Bank of
America, Chase, and Wells Fargo (to a lesser extent) provide subsidy
pricing (about a .375% in rate) for loans that are originated in low
to moderate census tracts, mostly in the inner city"
Good grief. And what exactly is that small "sub prime lender" not
covered by the CRA going to do when it watches potential customers
going to the big banks? To compete they also lowered their lending
standards.
Jeff
October 2, 2008 8:16 AM
Glen is just wrong. He does not mention anything about the issue of
the hush-hush CRA "score". If a bank wanted to get the green light
from certain regulators regarding expansion plans, bank acquisitions,
business expansion, etc. they needed a favorable CRA score. If you
were that close to the situation you surely are aware of this.
Steve
October 2, 2008 9:30 AM
Pretty obvious that the author of the article is drinking the Obama
Kool Aid.
I am Conservative but I am doing my very, very best to take this all
in and to look at this "crisis" objectively. Not sure it is the ONLY
reason for the "crisis" but CLEARLY the lending to unqualified
borrowers is a primary factor. CLEARLY the lending to unqualified
borrowers was spurred on by political policies dating back to the
90's. Again, not sure this is the only reason for the "crisis" but one
thing I am sure of... Nancy Pelosi is an absolute joke. Trying to
blame Bush's economic policies???? PLEASE!!!!!!!!!!!!!!!
Now I say "crisis" b/c I am still trying to figure out what this all
means. My neighbors and I (all hard working professionals) continue to
pay our mortgages on time. We all took out loans for our houses that
we knew we could afford. So, if banks and/or borrowers weren't that
responsible, WHY IN THE WORLD should we the taxpayers be paying for
that? Boggles the freaking mind.
But, then again, what do I know. I am just a bitter white guy clinging
to my guns and religion and I have always been proud of my country.
Todd Flemming
October 2, 2008 11:57 AM
Apparently Business week isn't into the truth. Just political
propaganda. They should be ashamed by having this article in their
magazine or on their website.
kelsey
October 2, 2008 1:22 PM
http://www.youtube.com/user/TheMouthPeace
its a bit partisan, but insightful.
Bill
October 3, 2008 10:51 AM
As Reagan said, "there you go again." Only the totally ignorant could
not connect CRA to the financial crisis we are in. Years of having
ACORN intimidate banks and their officers and the Clinton
administration's Janet Reno threatening if loans wre not blindly given
to low income caused the crash of FannieMae and FreddieMac. The
Democrats like Barney Frank who fought in 2004 and 2005(see CSPAN) to
resist Republican led reforms kept it buried until it imploded. It
didn't start in 2005 or 2006 it was hidden in tons of debt. Now
America hurts and people are losing homes they couldn't have never
afforded. Why didn't CRA help them get homes they could afford with
loans that didn't inflate--money into the pocket of those like Dodd
and Obama and Frank is a good guess!
Jerry
October 3, 2008 11:06 AM
Simply stated, the Community Reinvestment Act it is a program that
requires banks to make loans to people with bad credit. Banks making
loans to people with bad credit is what precipitated the current
disaster. Anyone who questions what caused his financial crisis need
only view the situation in simple terms:
1. Banks HATE making loans to people with bad credit, this has always
been the case throughout American history. Anyone who has ever worked
for a bank knows this.
2. Why would a bank make a bad loan to someone with bad credit unless
they were compelled by law to do so, and unless there was an
institution, Fannie Mae/Freddie Mac that would buy the bad loans from
them?
Freddie Mac and Fannie Mae are government sponsored giants whose
investments are 100% insured by taxpayer dollars whether or not they
make good or bad financial descisions. They bought the vast majority
of these crappy loans from banks, repackaged them, and hid them along
with other securities in various mutual funds and other investments.
In summary, the Federal Government mandated that banks make loans to
people with questionable credit through a Federal Law called the
Community Reinvestment Act. The Federal Government then bought all of
the bad loans that these banks made and hid them in other investments
and sold them on Wall Street.
To blame Wall Street for this crisis is absurd; investors on Wall
Street were tricked into buying securities that they thought were
backed by the Federal Government, i.e. Fannie/Freddie, but Fannie/
Freddie ran out of money and the securities turned out to be
worthless.
This crisis is a massive fraud perpetrated not by Wall Street but by
the US Federal Government. Wall Street and anyone with investments in
the stock market were the victims.
Mike
October 3, 2008 11:12 AM
Deregulation? What deregulation? The CRA is but one example of
government meddling in the mortgage industry that led to the housing
bubble and subsequent crisis. Government meddling distorts markets and
the mortgage crisis is yet another example of the negative unintended
consequences of well-intended government...meddling. The old saying is
"the road to hell is paved with good intentions".
Let's Keep This Simple
October 3, 2008 12:01 PM
I would like to offer the current proposition:
Banks giving loans to people with bad credit (subprime loans), was the
cause of the current crisis; I don't think anyone who has participated
in this discussion would disagree with that. The CRA mandates that
banks to give loans to people with questionable credit; I don't think
anyone would disagree with that either.
If subprime loans are the cause of the crisis, whether it was the sole
cause of the crisis or not, why would we continue the CRA program when
we know that it compels banks to do exactly what we all know caused
this crisis? It would be absolute insanity to allow this program to
continue.
Levi
October 3, 2008 12:12 PM
This is a joke article, the facts you have are so biased it's
ridiculous. The inflation of homes started in 1995!!! Look at any
chart that trends both inflation of currency and home prices and you
will see very clearly that CLINTON started that, he dramaticly revised
the CRA in 1995 and with the extreme over inflation of equity in homes
because everyone and there mom could get a house. So don't say
something as ignorent as "a 30 year old Act" when it was completely
revised in 1995 by Bill Clinton. This stuff doens't happen overnight,
as gas prices put pressure on middle class and lower income families
with subprime mortgages (and if you were a bank you could be SUED,
Obama was on a case like this.. for discrimination)and by the time the
pressure got bad, banks started losing money, it's taken until NOW for
it to catch up to us. Any chart on the Dow, inflation of home prices
will show you in started in 1995 after Bill Clinton dramaticly revised
this act.
Dan
October 3, 2008 12:22 PM
It's obvious to me that this problem originated with low/no
qualification standards for mortgage loans (sub-prime and Alt-A) that
was being supported and fed by a hyper-inflation of real estate value
and too easy securitization. It was viscious cycle that Fannie and
Freddie catylized and fed oxygen to. And why was this. Strong DC
lobbying...by groups pushing CRA and home ownership for low/no income
constiuents.
guew
October 3, 2008 12:30 PM
Fannie Mae Eases Credit To Aid Mortgage Lending - NY Times, 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."
Steve
October 3, 2008 12:31 PM
Whether a firm was subject to CRA had nothing to do with it. Clinton's
changes to CRA were the seed to grow the weed. Pressure from outside
groups such as ACORN (just as one example) who didn't take into
consideration whether a bank was actually required under CRA to
provide loans forced the banks (through misguided affirmative action)
to make these loans to minimize detrimental outcomes. Other firms not
subject to the same requirements saw an income opportunity as did
corrupt real estate brokers, real estate agents, etc. Greed was a
natural outcome of the changes Clinton made. It was also only natural
for Fannie Mae and Freddie Mac as GSE's to cover up the failed
Democratic government decision.
Of course, it was touted as a Democratic success (and still is) but
lending to those who never could afford it in the first place
(including those at the top all the way down to the greedy house
flippers that took on mortgages that they really couldn't afford under
the assumption that there was an investment prospect and those who
should outright never been granted a mortgage because of their income)
is the type of unsound thinking that has created this National
failure.
The NY Times reported on this 9 years ago and it was clear then that
this was going to become a problem yet it was just accepted because so
many had so much to gain:
Tom
October 3, 2008 12:47 PM
The reason why the whole banking system is crumbling is that FM/FM
bought these loans (giving the banks and mortgage companies the means
to make more questionable loans) and bundled these mortgages into
bonds . No one knows what loans are in what bonds, so there is no way
to value them. Because it is likely that many of these bonds will turn
out to be poor investments, and insurance on the bonds value is backed
by insurance companies that are tapped out, the bonds now are deemed
by the market to have NO value. Freddie and Fannie, by buying crappy
loans and backing them with the stamp of approval of the government
was turning garbage into gold. The bond rating agencies, by ignoring
the scale of what was being done added their AAA ratings to suspect
loans which were sold to pretty much every financial institution (the
bonds were backed FM/FM so the government will make good). The
companies buying them, how could they resist? These were profitable
government-backed AAA bonds! Where is the risk? Freddie and Fannie
paved the way. Other financial institutions mimicked what FM/FM were
doing by bundling mortgages into securities and insuring them to
satisfy the rating agencies that they were worth more than the shaky
loans that were behind them. There is plenty of blame to go around,
and CRA is part of the picture. For me, the bond rating agencies were
a BIG part of the picture and shood be investigated. They made tons by
evaluating and rating this "toxic paper".
Alan
October 5, 2008 6:48 PM
This article is a major cover up. First if a bank wants to do business
in a area they must have a plan for meeting the credit of that area.
When government puts into play a regulation like CRA they are hidding
the fact that they are forcing banks to invest in something that is
very high risk. This act was not really acted on until the 1990, why
do you think we had such a huge boom in housing and the economy was so
good in the 90's. The balloon was being filled to the point of
popping. Government put pressure on the banks during the 1990's and
banks had to come up with something. With help from Fannie Mae and
Freddie Mac they did. Now we are in trouble and have you ever noticed
that just like with children when they are in trouble the guilty party
is always the loudest at blaming others. Look out the worst is yet to
come.
Fred
October 5, 2008 6:57 PM
The amendments made to the CRA in 1995 had a great deal to do with the
current credit debacle. Check out http://www.cato.org/testimony/ct-ni3-8.html
written in 1995 and predicting exactly what has occurred.
TheTruth
October 5, 2008 9:33 PM
1998 Fannie Mae Eases Credit To Aid Mortgage Lending
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&scp=1&sq=fannie+mae+clinton&st=nyt
Special Report on The Banking Crisis
http://www.youtube.com/watch?v=VgctSIL8Lhs
2004: Dems Fight Regulations on Fannie, Freddie During Illegal
Bookkeeping Hearing
http://www.breitbart.tv/?p=184743
2005 John McCain co-sponsored S. 190 [109th]: Federal Housing
Enterprise Regulatory Reform Act of 2005. Unfortunately, it did not
make it out of the Senate Banking, Housing, and Urban Affairs
committee.
http://www.opencongress.org/bill/109-s190/show
Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008
Alone... Dems Ignored Warnings
http://gatewaypundit.blogspot.com/2008/09/bush-called-for-reform-of-fannie-mae.html
Text. . .
Sunday, September 21, 2008
Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008
Alone... Dems Ignored Warnings
For many years the President and his Administration have not only
warned of the systemic consequences of financial turmoil at a housing
government-sponsored enterprise (GSE) but also put forward thoughtful
plans to reduce the risk that either Fannie Mae or Freddie Mac would
encounter such difficulties. President Bush publicly called for GSE
reform 17 times in 2008 alone before Congress acted.
Unfortunately, these warnings went unheeded, as the President's
repeated attempts to reform the supervision of these entities were
thwarted by the legislative maneuvering of those who emphatically
denied there were problems.
The White House released this list of attempts by President Bush to
reform Freddie Mae and Freddie Mac since he took office in 2001.
Unfortunately, Congress did not act on the president's warnings:
** 2001
April: The Administration's FY02 budget declares that the size of
Fannie Mae and Freddie Mac is "a potential problem," because
"financial trouble of a large GSE could cause strong repercussions in
financial markets, affecting Federally insured entities and economic
activity."
** 2002
May: The President calls for the disclosure and corporate governance
principles contained in his 10-point plan for corporate responsibility
to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO,
5/29/02)
** 2003
January: Freddie Mac announces it has to restate financial results for
the previous three years.
February: The Office of Federal Housing Enterprise Oversight (OFHEO)
releases a report explaining that "although investors perceive an
implicit Federal guarantee of [GSE] obligations," "the government has
provided no explicit legal backing for them." As a consequence,
unexpected problems at a GSE could immediately spread into financial
sectors beyond the housing market. ("Systemic Risk: Fannie Mae,
Freddie Mac and the Role of OFHEO," OFHEO Report, 2/4/03)
September: Fannie Mae discloses SEC investigation and acknowledges
OFHEO's review found earnings manipulations.
September: Treasury Secretary John Snow testifies before the House
Financial Services Committee to recommend that Congress enact
"legislation to create a new Federal agency to regulate and supervise
the financial activities of our housing-related government sponsored
enterprises" and set prudent and appropriate minimum capital adequacy
requirements.
October: Fannie Mae discloses $1.2 billion accounting error.
November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw
explains that any "legislation to reform GSE regulation should empower
the new regulator with sufficient strength and credibility to reduce
systemic risk." To reduce the potential for systemic instability, the
regulator would have "broad authority to set both risk-based and
minimum capital standards" and "receivership powers necessary to wind
down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At
The Conference Of State Bank Supervisors State Banking Summit And
Leadership, 11/6/03)
** 2004
February: The President's FY05 Budget again highlights the risk posed
by the explosive growth of the GSEs and their low levels of required
capital, and called for creation of a new, world-class regulator: "The
Administration has determined that the safety and soundness regulators
of the housing GSEs lack sufficient power and stature to meet their
responsibilities, and therefore…should be replaced with a new
strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)
February: CEA Chairman Mankiw cautions Congress to "not take [the
financial market's] strength for granted." Again, the call from the
Administration was to reduce this risk by "ensuring that the housing
GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-
Ed, "Keeping Fannie And Freddie's House In Order," Financial Times,
2/24/04)
June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk
posed by the GSEs and called for reform, saying "We do not have a
world-class system of supervision of the housing government sponsored
enterprises (GSEs), even though the importance of the housing
financial system that the GSEs serve demands the best in supervision
to ensure the long-term vitality of that system. Therefore, the
Administration has called for a new, first class, regulatory
supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and
the Federal Home Loan Banking System." (Samuel Bodman, House Financial
Services Subcommittee on Oversight and Investigations Testimony,
6/16/04)
** 2005
April: Treasury Secretary John Snow repeats his call for GSE reform,
saying "Events that have transpired since I testified before this
Committee in 2003 reinforce concerns over the systemic risks posed by
the GSEs and further highlight the need for real GSE reform to ensure
that our housing finance system remains a strong and vibrant source of
funding for expanding homeownership opportunities in America… Half-
measures will only exacerbate the risks to our financial
system." (Secretary John W. Snow, "Testimony Before The U.S. House
Financial Services Committee," 4/13/05)
** 2007
July: Two Bear Stearns hedge funds invested in mortgage securities
collapse.
August: President Bush emphatically calls on Congress to pass a reform
package for Fannie Mae and Freddie Mac, saying "first things first
when it comes to those two institutions. Congress needs to get them
reformed, get them streamlined, get them focused, and then I will
consider other options." (President George W. Bush, Press Conference,
The White House, 8/9/07)
September: RealtyTrac announces foreclosure filings up 243,000 in
August – up 115 percent from the year before.
September: Single-family existing home sales decreases 7.5 percent
from the previous month – the lowest level in nine years. Median sale
price of existing homes fell six percent from the year before.
December: President Bush again warns Congress of the need to pass
legislation reforming GSEs, saying "These institutions provide
liquidity in the mortgage market that benefits millions of homeowners,
and it is vital they operate safely and operate soundly. So I've
called on Congress to pass legislation that strengthens independent
regulation of the GSEs – and ensures they focus on their important
housing mission. The GSE reform bill passed by the House earlier this
year is a good start. But the Senate has not acted. And the United
States Senate needs to pass this legislation soon." (President George
W. Bush, Discusses Housing, The White House, 12/6/07)
** 2008
January: Bank of America announces it will buy Countrywide.
January: Citigroup announces mortgage portfolio lost $18.1 billion in
value.
February: Assistant Secretary David Nason reiterates the urgency of
reforms, says "A new regulatory structure for the housing GSEs is
essential if these entities are to continue to perform their public
mission successfully." (David Nason, Testimony On Reforming GSE
Regulation, Senate Committee On Banking, Housing And Urban Affairs,
2/7/08)
March: Bear Stearns announces it will sell itself to JPMorgan Chase.
March: President Bush calls on Congress to take action and "move
forward with reforms on Fannie Mae and Freddie Mac. They need to
continue to modernize the FHA, as well as allow State housing agencies
to issue tax-free bonds to homeowners to refinance their
mortgages." (President George W. Bush, Remarks To The Economic Club Of
New York, New York, NY, 3/14/08)
April: President Bush urges Congress to pass the much needed
legislation and "modernize Fannie Mae and Freddie Mac. [There are]
constructive things Congress can do that will encourage the housing
market to correct quickly by … helping people stay in their
homes." (President George W. Bush, Meeting With Cabinet, the White
House, 4/14/08)
May: President Bush issues several pleas to Congress to pass
legislation reforming Fannie Mae and Freddie Mac before the situation
deteriorates further.
"Americans are concerned about making their mortgage payments and
keeping their homes. Yet Congress has failed to pass legislation I
have repeatedly requested to modernize the Federal Housing
Administration that will help more families stay in their homes,
reform Fannie Mae and Freddie Mac to ensure they focus on their
housing mission, and allow State housing agencies to issue tax-free
bonds to refinance sub-prime loans." (President George W. Bush, Radio
Address, 5/3/08)
"[T]he government ought to be helping creditworthy people stay in
their homes. And one way we can do that – and Congress is making
progress on this – is the reform of Fannie Mae and Freddie Mac. That
reform will come with a strong, independent regulator." (President
George W. Bush, Meeting With The Secretary Of The Treasury, the White
House, 5/19/08)
"Congress needs to pass legislation to modernize the Federal Housing
Administration, reform Fannie Mae and Freddie Mac to ensure they focus
on their housing mission, and allow State housing agencies to issue
tax-free bonds to refinance subprime loans." (President George W.
Bush, Radio Address, 5/31/08)
June: As foreclosure rates continued to rise in the first quarter, the
President once again asks Congress to take the necessary measures to
address this challenge, saying "we need to pass legislation to reform
Fannie Mae and Freddie Mac." (President George W. Bush, Remarks At
Swearing In Ceremony For Secretary Of Housing And Urban Development,
Washington, D.C., 6/6/08)
July: Congress heeds the President's call for action and passes reform
of Fannie Mae and Freddie Mac as it becomes clear that the
institutions are failing.
In 2005-- Senator John McCain partnered with three other Senate
Republicans to reform the government’s involvement in lending.
Democrats blocked this reform, too.
http://hotair.com/archives/2008/09/17/mccains-attempt-to-fix-fannie-mae-freddie-mac-in-2005/
More... Not only did democrats not act on these warnings but Barack
Obama put one of the major Sub-Prime Slime players on his campaign as
finance chairperson.
http://astuteblogger.blogspot.com/2008/09/sub-prime-slime-obama-and-pritzker-and.html
Tristan Berry
October 6, 2008 1:14 AM
"Most subprime loans were made by firms that aren’t subject to the
CRA."
Okay. I get that. But you're using the number of firms making subprime
loans as the basis of comparison. That's misleading. If the minority
of firms making the subprime loans that ARE subject to the CRA
includes Fannie Mae and Freddie Mac, wouldn't just these two HUGE,
GOVERNMENT-BACKED firms drive the market and incentivize other lending
institutions to also make subprime loans?
Look, I have a high-school education. I've not spent a single day in a
university classroom and even I can see this!
Oh, and another thing, Mr. Pressman. Where did you get your journalism
credentials? You're supposed at least ATTEMPT to hide your bias when
you submit an article. This article is positively dripping in anti-
Bush vitriol. No wonder you couldn't find reliable data. You obviously
weren't looking for it.
Brian
October 6, 2008 7:12 AM
The statistics the defenders of the CRA present on this are horribly
skewed. For example, Countrywide Home Loans was what these statistics
would refer to as a "non-CRA lender". However, if we look at their old
cached website, here's what they say about their "CRA Program":
"Countrywide Home Loans, Inc. (Countrywide) is proud of its long-term
commitment to affordable and fair housing...for minority and low-to
moderate-income families in under-served communities..."
"..As of July 31, 2004, the company had funded nearly $301 billion
toward this goal..."
And here's the best part:
"The result of these efforts is an enormous pipeline of mortgages to
low- and moderate-income buyers. With this pipeline, Countrywide
Securities Corporation (CSC) can potentially help you meet your
Community Reinvestment Act (CRA) goals by offering both whole loan and
mortgage-backed securities that are eligible for CRA credit."
So, these "non-CRA lenders" were packing their predatory loans as
securities and selling them to CRA banks for CRA credit.
The idea that the CRA is not tied to these predatory sub-prime
products because statistics show that the issuing banks aren't CRA
lenders is horribly misleading.
You might as well claim that tobacco companies don't contribute to
lung cancer because gas stations and grocery stores sell the most
cigarettes.
I wish the "know-nothing" people who keep spouting non-CRA lending
statistics would take a deeper look at the subjects they try to
educate everyone about.
Gary
October 6, 2008 10:19 PM
"It’s telling that, amid all the recent recriminations, even lenders
have not fingered CRA. That’s because CRA didn’t bring about the
reckless lending at the heart of the crisis. Just as sub-prime lending
was exploding, CRA was losing force and relevance. And the worst
offenders, the independent mortgage companies, were never subject to
CRA — or any federal regulator. Law didn’t make them lend. The profit
motive did. And that is not political correctness. It is correctness."
The worst offenders were the mortgage companies? That's a laugh, all
they did was find lenders to loan the money and took a commission. It
was still the lenders, banks, underwriters, that approved the
applications (with their no-doc loans) and that were subject to the
CRA OVER regulation (mandates to promote home ownership in poor
economic areas) that led to the collapse. ALmost all the sources in
this article were Clintonite appointees that had an agenda. For a
balanced opinion on the CRA's impact go to
http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Original_Act
Matt
October 10, 2008 6:19 AM
CRA loans most likely played a part in this subprime even it may have
been indirectly. Rules like CRA open up mechanisms that allows banks
to bypass the normal methods of credit checking. This is the main
contribution of CRA. It created a mechanism for subprime loans to pass
through the system and to grow way beyond the intention. Its not easy
to meddle...
Vince
October 12, 2008 3:03 PM
"The CRA does not require subprime loans. It requires that a bank make
loans in the same geographic areas where it takes deposits (i.e., it
prevents "redlining"). And financial institutions that don't take
deposits"
And this is the genesis of why the CRA was an ill-advised piece of
legislation in the first place, which was only made worse over time
with additional bad regulations not de-regulation. Extending credit to
any one individual should not be made on the basis of the geographic
location of the individual- it should be made strictly based on that
individual's ability to pay and credit worthiness, end of story. The
CRA was the beginning of this sad saga, and to insist otherwise is
most disingenuous.
Mark
October 12, 2008 3:48 PM
Is Aaron Pressman ignorant of the fact the CRA has been updated and
expanded multiple times since the original 1997 version?
Does Aaron Pressman not know that money is fungible? CRA specified
changes in loans had to apply to all, FNMA backed or not. It does not
matter what percentage of subprime loans were bought by FNMA, it was
an open market.
Does Aaron Pressman not understand the basics of monetary inflation
and supply/demand curves? Flood a market with money or credit, and
prices go up.
Larry
October 12, 2008 10:57 PM
Regulation, not deregulation is what caused the current crisis. I
agree that Democrats very rarely run on deregulation--they want to
regulate everything, so we can lay the subprime crisis directly at the
Democrats' door just as 9/11 can be. The Bush intellignece agencies
were operating in rules put in place by Clinton that prohibited
information sharing. Finally -- it is not the Feds' job to provide
hurricane services--it is and always has been, the job of local
agencies. In the case of Katrina we had a Democrat governor, and
particularly a Democrat mayor of New Orleans who didn't follow his own
disaster plan and was desperate for a scapegoat. The same storm hit
Mississippi and Alabama and we didn't have near the problems there
that Big Easy had, even though they were on the dangerous East side of
the eye ot the hurricane. Could it be that was because those states
had Republicans in charge? I know it's a kneejerk reaction for you
libs to blame Republicans for everything from hurricanes to diaper
rash, but it makes you look uninformed.
Also--it is disingenuous to say that most loans were made by
institutions not subject to CRA. They are referring to mortgage
brokers, but very few of those firms have their own pool of cash to
lend from, they simply shop the app among financial institutions who
ARE covered by CRA to place the loan for their client. Ultimately in
virtually all mortgage loans, a CRA-subject institution must
scrutinize the app before the money is lent.
steve
October 13, 2008 1:53 PM
Before you post an article you should do a little math. While I do not
have the precise data, you should get it and do the analysis. 1/4 all
banks were regulated by CRA. Of those 1/4 of Loans were CRA. Of those
20% are forclosing. Normal forclosure is 1%. So the rough math
calculation is .25*.25*.19=1.2% of forcloseres added by CRA. Our
current forclosure rate causing the problem is up from about 1% to
about 2.5%. It is not the entire problem but it is a huge problem. As
long as home prices went up and CRA maid subprime loan, one subprime
could sell to another and excape forclosure.
Sapient Hetero
October 13, 2008 6:12 PM
Why is it that liberals, when confronted with the truth and backed by
quantifiable and verifiable data, feel that it is only necessary to
say, "That's a lie!" in order to prove their case?
See the video at http://www.youtube.com/watch?v=1RZVw3no2A4 if you
want a paper trail that leads right to the Dem's doorstep.
Jerry
October 13, 2008 6:34 PM
I find it stunning that people think more regulation is the answer to
this crisis. For the next ten years or so, maybe even longer, we will
all be paying for a disaster created by Fannie Mae/Freddie Mac, a
monstrosity of a Government institution, 100% backed by taxpayer
dollars. Our Government has maintained massive control over the
housing market for years; WHY GIVE THEM MORE? Shouldn't the fact that
Fannie and Freddie and CRA welfare programs played a major role in
bringing about this crisis be a sign that the GOVERNMENT NEEDS TO GET
OUT OF THE HOUSING MARKET? How about let's take away their power to do
this again.
More regulation means more bureaucrats, who know absolutely nothing
about banking, finance, real estate, etc., yet they make decisions
that have a huge impact on those markets every day.
We have tried having a housing market that is massively controlled and
regulated by incompetent bureaucrats in Washington; let's try giving
the free market, (you know, that thing that made America the greatest
most successful, most productive country in the world), a chance.
Jerry
October 14, 2008 2:57 PM
If the CRA simply directs banks to make loans in a "Safe and Sound"
manner, why do we need BS programs like the CRA in the first place? I
am pretty sure banks were making "Safe and Sound" loans way before the
passing of the CRA welfare program; and I am also pretty sure that
back then people actually bought houses they could afford instead of
the now typical $300,000 home on a $30,000 salary.
Don't overlook the role of other Government Agencies in this crisis
such as the 100% taxpayer backed Fannie and Freddie. The 3% ARMs that
increase to 12% and "no principal loans" were only made possible with
the guarantee that these agencies would buy them at a premium. Fannie
and Freddie eliminated the inherent risk of subprime loans; that is
how we got here.
Jerry
October 15, 2008 5:33 PM
I am amazed by the attitude of some people on this forum that put so
much trust in Government officials. People like Barney Frank, who
knows about as much about real estate as I know about brain surgery,
stood up there in Congress for years fighting to expand Fannie/Freddie
and make even more of these ridiculous loans while several experts,
(people who actually knew something about the real estate market),
warned against it.
The following statement was written in a September 1999 article titled
"Fannie Mae Eases Credit To Aid Mortgage Lending" in the New York
Times:
"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."
When my parents and grandparents bought their first homes, meager as
they were, the monthly notes were within a range they could afford.
They never got evicted because, even when the economy wasn't doing so
well and/or one of them lost a job, they could adjust their lifestyles
and get by. Banks made reasonable loans because they knew if the loans
defaulted, it would hurt them financially. US banks have a long
tradition of stability; it is why every country in the world up until
recently placed more trust in US banks than banks in their own
countries.
With the carrot of Fannie/Freddie and the stick of the CRA our
Government completely skewed the risk/benefit equation for private
banks, and sparked an irresponsible lending free-for-all. These
programs had the net result of persuading poor people to buy homes
that they could not afford, followed by the excruciating process of
trying to pay a monthly mortgage that they could not afford, followed
by the embarassment of having all of their posessions placed on the
curb by the local Sherriff's Dept. They encouraged "predatory lending"
on a mass scale, eliminating risk and incentivizing loans that were at
one time considered to be highly risky. The end result was the
destruction of a sector of the American economy that, prior to the
current mess, had a very long tradition of being the most stable in
the world.
While we are firing all of these bankers and CEOs, let's start at the
top. Let's fire the Barney Franks and all of the other Government
officials who forged ahead with the expansion of these disastrous
policies in the face of repeated warnings and created the catalyst for
the current global economic crisis.
Jerry
October 16, 2008 5:25 PM
The CRA was only one factor in the meltdown; not all banks were
subject to it but it certainly played a role. Where the CRA did not
apply, the 100% taxpayer based government entities known as Fannie
Mae, Ginnie Mae, and Freddie Mac strongly encouraged banks to make
loans to people with questionable credit.
Banks like Countrywide, the poster child in the mortgage meltdown,
were given high praise by Fannie/Freddie for "the most flexible
underwriting criteria permitted", (located on page 11 in the report
below created by the Fannie Mae Foundation). Countrywide's $1 billion
commitment to low-income loans in 1992 had grown to $80 billion by
1999 and $600 billion by early 2003.
85%, let me repeat, 85% of Countrywide's loans were sold to either
Ginnie Mae or Fannie Mae.
"A majority of Countrywide’s mortgage loans are sold to Fannie Mae,
Freddie Mac, or Ginnie Mae. About 36 percent of the loans go to Ginnie
Mae, 48 percent to Fannie Mae" (from the same report, page 3).
http://www.fanniemaefoundation.org/programs/pdf/rep_newmortmkts_countrywide.pdf
The following is a quote from Ben Bernake in a speech given on March
30, 2007 titled "The Community Reinvestment Act: Its Evolution and New
Challenges".
"Securitization of affordable housing loans expanded, as did the
secondary market for these loans, in part reflecting a 1992 law that
required the government-sponsored enterprises, Fannie Mae and Freddie
Mac, to devote a large percentage of their activities to meeting
affordable housing goals." (p. 3)
Below is the link to the full speech on the Federal Reserve website:
http://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm
The 1992 law that he refers to is called the The Federal Housing
Enterprises Financial Safety and Soundness Act of 1992. If you care to
read it the full text can be found here.
http://thomas.loc.gov/cgi-bin/query/F?c102:6:./temp/~c102RepSWf:e867:
There is clear evidence to show that the US Government, through
entities like Fannie Mae and Freddie Mac dramatically expanded the
purchase of questionable loans during the 1990s, relaxed the credit
requirements of borrowers through laws like the "The Federal Housing
Enterprises Financial Safety and Soundness Act of 1992", and then
repackaged these loans and resold them on Wall Street, poisoning the
US financial system and markets all over the world.
greg
October 17, 2008 12:19 AM
Anyone who makes a statement such as "Where the CRA did not apply, the
100% taxpayer based government entities known as Fannie Mae, Ginnie
Mae, and Freddie Mac...." already renders much of his succeeding
argument questionable. At the time we're talking about, Freddie and
Fannie were PRIVATE!
"From 1938 to 1968, the secondary mortgage market in the United States
was monopolized by the Federal National Mortgage Association (Fannie
Mae), which was a government agency during that period. In 1984, to
help balance the federal budget, part of Fannie Mae was converted to a
PRIVATE CORPORATION. To provide competition in the secondary mortgage
market, and to end Fannie Mae's monopoly, Congress chartered Freddie
Mac as a PRIVATE CORPORATION.
The Emergency Home Finance Act of 1970 created Freddie Mac. The goal
was to create a secondary market for conventional mortgages, as
indicated in the Fannie Mae charter. [3]
The Financial Institutions Reform, Recovery, and Enforcement Act
("FIRREA") of 1991 revised and standardized the regulatory mechanisms
for both Fannie Mae and Freddie Mac. Prior to that, Freddie Mac was
owned by the Federal Home Loan Bank System and its member thrifts and
governed by the Federal Home Loan Bank Board which was later
reorganized into the Office of Thrift Supervision. FIRREA severed
Freddie Mac's ties to the Federal Home Loan Bank System, created an 18-
member board of directors to run Freddie Mac, and subjected it to HUD
oversight."
Triciab
October 17, 2008 5:39 PM
To Reality and other banking insiders:
Interestingly I have a son that was for years involved in banking and
securities and I have another son who had to have his home foreclosed
on recently. So I kind of see from both sides of that issue.
Yes, your husband and his colleagues probably did make lots of money
on those home-equity, ARM, and other dicey mortgage deals. And he
probably never heard of CRA until now.
My question is this: How could a lending institution even think about
developing these risky mortgage products unless there was someway to
guarantee the loans and make sure that the reward would be greater
than the risk factor?
Greedy lenders were relying on the hope that the housing market would
continue to rise, even when economists were warning that it couldn't
continue forever. Why? Were they completely unaware of market trends?
Or did they have a backdoor of security knowing that thier products
would be backed by Fannie Mae and Freddie Mac?
So, what was it that spurred this increase in housing prices that
seemed to spiral out of control and way beyond the normal inflation
rate? What caused this frenzy that made people believe that the
housing market would continue to spiral upwards forever?
I think that is what this debate is all about! But I personally do
believe that the loosening of lending requirements that came as a
result of the changes to CRA in 1995 helped to push the market in that
direction.
Countrywide had a BIG hand in this crisis and there is no denying
that. They not only gave out financing to cover CRA loans which may or
may not have defaulted, but they also offered every concievable kind
of risky mortgage loan out there. And they were praised for doing so
by Fannie Mae.
The fact that Fannie Mae and Freddie Mac and Ginnie Mae were backing
low-income mortgages as well as buying repackaged securities that also
included even higher risk mortgages, many of those being flipper
schemes bought into by middle to higher income familes, is partly what
caused the collapse we are seeing now.
My son walked away from his home because it became so upside-down
after the value fell substantially that he couldn't sell it. He's not
poor, but he sure isn't wealthy either. He was given an ARM loan that
we, his parents, warned him would go bad, but he failed to take our
advice. This crisis is partly his fault for going beyond his means to
buy a house that was overinflated instead of waiting until he could
really afford one. However, if the ARM loan were never offered to him,
he could never have gotten into this situation.
This is happening to middle-class Americans all the way down to the
poor who can no longer pay their mortgage due to all kinds of factors,
including higher unemployment.
Does all of this come from the CRA? Of course not! Realistically, I
think the CRA as it was originally written was a good law. But did the
expansion of CRA open a door to help fuel the housing market boom and
drive the market toward riskier mortgages? Yes, I think it had a hand
in it.
I agree with those here who say that some of the biggest culprits in
all this mess are the Government agencies that meddle in the housing
market.
Bottom line though, it is the invidual who over-extends himself on
credit that he cannot afford that is ultimately to blame. We have been
living on easy credit for far too long in this country. Our children
have been taught that it's ok to buy now and pay later. Lax and
irresponsible lending has fueled this philosophy and it is coming back
to haunt us. Instead we should teach our children to work hard, save
for the future, and buy only what they need and can afford on their
current income, or do without.
I firmly believe in the American dream of home ownership, but that
dream must be based on sound economic pricnciples, the first of which
should ALWAYS be LIVE WITHIN YOUR MEANS.
Kenneth D. Emerson
October 19, 2008 12:41 AM
I realize you stereotypically
think anyone west of DC is stupid. However, we are not that stupid!
Your lead statement
is a boldface lie and totally without merit.
Jay D Sharp
October 22, 2008 7:18 PM
To discover the genesis to this fiscal debacle - we have to go back to
1968 when Lyndon Johnson privatized Fannie Mae. This action created
the platform on which the Democrats made significant progress towards
taking your hard earned money and giving to others with the result of
raping and pillaging the hard working men and women of this great
nation. In 1977 Jim Carter put the Community Reinvestment Act in place
which served to infuse capital in to segments of the market - this
served a worthy purpose. The legislation that was put in place that
was evil and sinister was Clinton's revision of the CRA that totally
liberalized the Act so as to allow for the securitization of subprime
mortgages, (and this is the kicker), with the implication that Fannie
Mae would provide the guarantee. The mortgages created under Franklin
Raines tenure between 1999 and 2002 created the toxic poison that
remain on the books to this day and ultimately caused this gross and
incompetent assignment of real estate assets. This infusion of vast
quantities of money over a short period of time also caused housing
prices to spike which undermined one of the stated goals of Fannie Mae
in the first place. The pathetic part is that Schummer Dodd and Frank
don't know didley squat about how to run a business never mind create
affordable housing responsibly. Democrats all - just plain dumb.
Josh
October 23, 2008 9:16 AM
OK, even if the Clinton administration had a big hand in creating the
conditions that allowed this to happen, ( I am not convinced), I have
three problems: 1) Does anyone honestly think that this could happen
again in our lifetime, given what we know now? 2) Who can blame Obama
for this, or even use it against him? He is just as likely to press
for regulation as McCain. 3) Just because CRA forced banks and brokers
to lend, doesn't mean they were forced to create teaser rates and
ARMs. If everyone had been able to get a fixed rate mortgage at a
decent interest rate, we would not have a problem. The majority of the
people would still be able to pay their mrotgage. It just doesn't make
sense to charge the people you think might default a higher (or
increasing) rate. Greed and the necessity to increase growth or get
punished by Wall Street is just as much at fault as anything else I
have heard.
Jerry
October 29, 2008 11:58 AM
To answer Josh, yes this could very well happen again in our lifetime.
There is a widely held belief among ultra-liberals as we have heard in
recent news, in the idea of "spreading the wealth". They believe that
through programs like the CRA and by mandating that "Government
Sponsored Enterprises" like Fannie and Freddie lower their credit
standards, suddenly people with bad spending habits are going to make
a 180 degree change in their lives and become fiscally responsible.
Living in a nice house is not going to change years of poor money
management skills. As long as extreme left-wing individuals believe
the ridiculous and frequently disproven notion that government
handouts will somehow magically change a lifetime of bad spending
habits, this could very well happen again.
2. Yes, Obama certainly has some culpability in this crisis. In Buycks-
Roberson v. Citibank in 1995, Obama representing ACORN, sued Citibank
under the CRA in a housing discrimination suit. Now regardless of
whether you think the CRA was a direct cause of this crisis or not, we
do know that it was caused primarily by subprime loans being handed
out to a large number of people and failing. ACORN is known to harass
and embarrass banks for refusing to give loans to people with bad
credit. By working on ACORN’s behalf, Obama acted as a contributor to
an organization that promoted making subprime loans to people.
3. Anyone with a basic understanding of finance knows that the reason
some people with poor credit are charged higher interest rates than
others is because they are more likely to default. With several
decades of statistical loan data, banks know that a certain percentage
of subprime loans will go bad. The higher interest rate makes up for
the percentage of loans that default. You say “It just doesn't make
sense to charge the people you think might default a higher (or
increasing) rate.” A tremendous amount of statistical data collected
over several decades would prove otherwise.
Greed did not cause this crisis. As this situation was developing,
Wall Street was doing the same thing it has been doing throughout the
history of the stock market; buying and selling securities for a
profit. It was the Federal Government, strongly encouraging and in
some cases forcing banks to make loans to people with questionable
credit, that led to a massive failure in the housing market.
People say we need more regulation. What would the Government
“regulate”. Would it tell banks to stop making loans to people with
questionable credit? (The CRA and Fannie/Freddie encouraged banks to
make loans to people with questionable credit). Would it force banks
to raise their credit standards, (the CRA and Fannie/Freddie
encouraged banks to lower them). Would it tell banks to stop selling
bad loans to Fannie/Freddie, while at the same time lowering Fannie/
Freddie’s standards for the types of loans that they are allowed to
buy on the secondary market?
Banks generally didn’t make such loans historically, (or at best it
was extremely difficult), until compelled to do so by the Federal
Government. It wasn’t until the Federal Government became heavily
involved in the housing market that we started having problems; prior
to that our real estate market was among the most stable in the world
for several decades. Perhaps the Federal Government should stop
creating disasters that it has to immediately turn around and fix.
The majority of people who received subprime loans under these
programs are actually worse off now than if this massive government
intervention had never taken place.
Mark
October 30, 2008 8:30 AM
Lem'me get this straight:
The Dems are upset becasue it's been traced to a piece of legiclation
by a Dem, loosened by a Dem that says you must lend to underincome
areas. Says nothing about qualifying for the loans, but that a
percentage of loans must be in underincome areas. If there is little
income, how do you pay them back?
The Repubs are mad becasue it happened while they are in the
Executive, and that Congress gets a "pass" for the oversight they are
crying out for.
The core of the problem is basic lending practices, like "no phone, no
loan". Why would I give money to you if I have no way of tracking you
down? Why would I give you money, if you don't have the ability to
pay?
These institutions (banks, brokers, thrifts, etc) made record profits
using these exotic programs, which FNMA and FHLMC got into. RECORD
PROFITS! Now that the "chickens are coming home to roost" we have to
bail them out. They took the highs, now let them take the lows.
Where were the Boards of Directors in charge of the hierarchy of these
institutions? Their responsibility is to hire effective leadership. If
the leadership is failing and losing focus, then get new!
More oversight? Isn't that what the CRA and its mandate of loans to
lower income areas did? How about sound banking and lending practices?
Last statement: If the Dems were not at the root of this problem, why
are there no hearings or prosecutions from the House and Senate?
They'll bring charges on anyone, and yet nothing. They've said that
they will bring charges against President Bush after the election, but
no word about this crisis? C'Mon!
David Rodgers
January 16, 2009 1:05 PM
I don't think George Orwell could have written a fictional example of
propaganda that is more of a brazen lie than this one.
The "the false and politicized attack on Fannie Mae and Freddie Mac?"
What, cooking books, going insolvent and costing the American
taxpayers hundreds of billions of dollars is a GOOD thing?
How about the "independent mortgage companies," that were were "never
subject to CRA?" Well, they were writing subprime mortgages, alright,
because they knew they could turn around and sell them to, you guessed
it, Fannie Mae and Freddie Mac.
So the "unfairly attacked" Fannie Mae and Freddie Mac were giving
lenders a perverted incentive to make bad loans, CRA was leaning on
lenders to make bad loans, and when the loans went bad, the government
didn't cause the crisis, the free market did.
Sure. War is Peace. Freedom is Slavery.
Jay Privette
January 17, 2009 12:39 PM
CRA didn't have anything to do with the current financial crisis???
This Kool-Aid has too much BS in it to drink.
Scott
February 11, 2009 11:33 AM
I agree with this Harvard senior economics lecturer Jeffrey Miron:
"The current mess would never have occurred in the absence of ill-
conceived federal policies. The federal government chartered Fannie
Mae in 1938 and Freddie Mac in 1970; these two mortgage lending
institutions are at the center of the crisis. The government
implicitly promised these institutions that it would make good on
their debts, so Fannie and Freddie took on huge amounts of excessive
risk.
Worse, beginning in 1977 and even more in the 1990s and the early part
of this century, Congress pushed mortgage lenders and Fannie/Freddie
to expand subprime lending. The industry was happy to oblige, given
the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing
credit guidelines. This lending was a wholesale abandonment of
reasonable lending practices in which borrowers with poor credit
characteristics got mortgages they were ill-equipped to handle."
How about a simple question- If the CRA had NOTHING to do with banks
making these bad loans, why did none of the banks make these loans
before the CRA passed?
How do you explain that?? It has to do with the assurances that the
Federal Government gave to Fannie and Freddie.
Ed
March 2, 2009 4:17 PM
Horse hockey!!!!
Mortgage brokers are governed by a host of federal laws and
regulations. For example, mortgage
brokers must comply with: the Real Estate Settlement Procedures Act
(RESPA), the Truth in
Lending Act (TILA), the Home Ownership and Equity Protection Act
(HOEPA), the Fair Credit
Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), the
Gramm-Leach-Bliley Act
(GLBA), and the Federal Trade Commission Act (FTC Act), as well as
fair lending and fair housing
laws. Many of these statutes, coupled with their implementing
regulations, provide substantive
protection to borrowers who seek mortgage financing. These laws impose
disclosure requirements
on brokers, define high-cost loans, and contain anti-discrimination
provisions.
Additionally, mortgage brokers are under the oversight of the
Department of Housing and Urban
Development (HUD) and the Federal Trade Commission (FTC); and to the
extent their promulgated
laws apply to mortgage brokers, the Federal Reserve Board, the
Internal Revenue Service, and the
Department of Labor.
Todd
March 2, 2009 6:00 PM
This article is wrong wrong wrong. The person who wrote it should be
fired fired fired.
scott
March 6, 2009 2:28 AM
That's one reason why those non-risk-taking-meanie-banker-buddies-of-
Bawney took such a hit.
One should know a fact here: if BANKS wanted FDIC insurance and
discount rates, among other things, they HAD TO COMPLY WITH CRA.
Otherwise, start a credit union in Smallsville, USA. Kapiche?
See? Simple: want FDIC insurance, bank discount rates? Bawney's got an
offer you can't refuse.
DannyH
March 16, 2009 4:55 AM
Martin Eakes and coupled with its partner organization the Self Help
credit union headed The Center for Responsible Lending, is a bit of a
misnomer. This center promotes mortgage loans to be made by people
whom turns out, irresponsible to lend to. They’ve made their
propaganda machine on the cash advance industry, recently restricted
in Ohio by the Small Loan Act, and when cash advance lenders there
found legal means to stay in business, they started screaming about it
in a most child-like fashion. It’s really hard to believe they really
are a Center for Responsible Lending.
TalS
March 25, 2009 5:11 PM
It doesn't matter what type of lending institution issues the sub-
prime mortgage. The problems came in when a large group, or "pool" or
mortgages were packaged together as an investment security. These were
sold by the initial institution that issued them, and bought by other
banks, companies, and individuals who used them as investment
instruments. When the sub-prime mortgages that were within those
securities defaulted, whoever was holding the security at the time
(usually a different bank) was the one that suffered most.
This is why AIG is taking the hardest hit in the banking industry
right now. They "invested" in, or, bought, securities such as these,
from other banks such as Goldman.
Another thing, as many of you have mentioned, it was Clinton who made
this issue worse, by repealing the Glass Steagall Act of 1933 (Banking
Act of 1933). This Act had initially separated commercial from
investment banking to eliminate conflicts of interest and to reduce
speculative trading in certain markets, including real estate, which,
hmm, I'm pretty sure would be considered housing.
If this Act had not been repealed (because investing in housing would
not have been possible), many of the problems we are facing now would
not even exist.
Freedom4
March 30, 2009 11:16 AM
Sub Prime loans were relatively non existant before Clinton. During
Clinton's administration they were the highest as a percentage of all
mortgages and the reason that they did not collapse was that because
fo the .com and technology boom, as well as the 15 year run in the
real estate market there was no stress put on the system really. As
soon as there was they began falling from the sky. Clinton had good
intentions just as with any other entitlement program, but just as the
other entitlement programs they are breaking this country.
Here is A great video of Clinton's administration bragging about
forceing Banks to make sub prime loans.
http://www.youtube.com/watch?v=Lr1M1T2Y314
Courtney
June 3, 2009 1:15 PM
I didn't see anyone mention why the CRA became law and was then
amended. Democrats aren't nicer than Republicans in terms of wanting
everyone to own a pretty house; they will sink this country in order
to get more minority votes (see Obama's wealth distribution theory).
Look at Chrysler and GM and how labor unions have benefitted as lower
tier creditors. Give whatever interest group their free cheese to
thank them for their vote in 11/08 and for future votes. Sadly, this
is what America has become.
Dave R.
July 7, 2010 12:58 PM
For another FACTUAL article articulating the Housing Meltdown,
countering Mr. Pressman's bias, please see:
dave
>
>
> Ya stupid fuck
>
> The Housing disaster was a CULMINATION of years of bad policy under
> BUsh and the GOP dominated/controlled Congress.
>
> Frank had no say
He's admitted to oversight failures back in the early double naughts.