1977 The Community Reinvestment Act is created to address alleged discrimination by banks.
1989 Congress amended the Home Mortgage Disclosure Act requiring banks to disclose racial information on applications.
1995 Clinton's treasury issued regulations tracking loans by neighborhood, income groups and race. Ratings were used by regulators to determine whether mergers would be approved. Used by ACORN to file petitions to slow or prevent banks from conducting business. Banks were extorted to make huge pools of money available to low-income individuals with bad credit. Sub-prime mortgage loans were born.
1992 HUD pressured Freddie Mac/Fannie Mae to purchase (securitize) bundles of loans to diversify the risk and more money available for risky loans. Congress also passed the Federal Housing Enterprise financial safety and soundness act mandating that Fannie/Freddie buy 45% of all loans for low income borrowers.
1995 Congress passes the Community Development Financial Institutions Fund which providedTax dollars to encourage even more risky loans.
Repeated warnings of the pending meltdown were ignored by Dodd, Frank and Schumer.
Derivatives are contracts where one party sells risk to another party in exchange for payments. This allowed banks and investors to spread the risk associated with these mortgages. AIG invested in derivatives
The Federal Reserve Bank had a role in the bust. First by slashing interest rates repeatedly (encouraging borrowers to take risky ARM loans at low rates). Then by steadily raising rates (from 1% to 5% in between 2004 and 2006). When the ARM rates increased, people couldn't pay, the bottom fell out of housing market. BOOM - here we are.
And, you still think that a LACK of government regulation is the problem?
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25 comments:
"Dude, Where's My Prosperity?"
On it's way to China.
I see, so the mortgage crises resulted from forcing banks to loan money to minorities.
No, it comes from forcing banks to loan money to people who don't repay the loans.
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies… –Thomas Jefferson to John Taylor, 28 May 1816
Meddling fingers and baseball bats.
Sean, while that may be (partially) true, the pretext of your argument implies it's "them po colored folk" who can't be trusted to repay their loans. Unfortunately your examples fail when you examine foreclosure demographics. Cindy's home town of Cape Coral has one of the highest foreclosure rates in the country and yet its population is 93% white.
I also notice your chronology of events basically ends in 1995, even though the housing boom (and bust) didn't begin until after the new millennium. For an insight into the effects of Bush deregulation you should read the op-ed Eliot Spitzer wrote shortly before the previous administration had him J. Edgar Hoovered.
IMO the mortgage crises is a complex issue which cannot be assigned a single cause. However, I believe the main underlying factor is simple greed. The problem started when houses stopped being homes and turned to a source of investment. It was at this point the price of housing skyrocketed. Unfortunately like any other speculative investment what goes up must come down. And now we are all paying the price.
RAC - you are making the racist inference, I didn't imply anything of the sort. I'm merely stating the facts. These laws and regulations from congress were ostensibly intended to give everyone the American dream of home ownership, whether they earned it or not.
And, it isn't a matter or trust. In the old days, one would have to save 20% for the down payment on a home. This demonstrated the discipline to save the money but also resulted in a personal stake in the property. Rather than focus on programs/actions/assistance/whatever that would lead to minorities actually qualifying for traditional mortgage lending, the feds simply changed the rules and forced banks to lend to those who had not qualified. This wasn't only available to minorities, to be sure, I've been offered mortgages with little or no money down, or secondary loans to make up the 20% or whatever.
These changes to sound lending practice are akin to, say, forcing insurers to ignore pre-existing conditions. It is something that "sounds great" in a speech, until you actually think about the consequences.
The the democrats to stand up and constantly bemoan the financial institutions, wall street and "predatory lenders" is nothing short of misleading hypocrisy.
yeah Sean,That's the way you see it. RAC makes a much different and believable debate.
You just keep waving those pompoms, Jo.
Sean, please reread your post and tell me again there isn't an underlying tone of racist sentiment in it (intended or not). Also, you make it sound as if lenders were unwilling participants in this scheme... they were not. I do however agree the consumer was ultimately responsible for the mess they got themselves into. Free money seldom comes without a price.
RAC, I didn't make this up. I didn't write the legislation. It was, in fact, written to address alleged discrimination in lending. That, in itself, is racist. That some minorities can't succeed in this country without help from the government. These policies only serve to create a dependent class.
And, yes, they were not willing. Otherwise, the legislation and pressure from ACORN and other groups would not have been "necessary".
Are you saying that banks WANT to lend hundreds of thousands to people who don't risk any of their own money or demonstrate a responsible credit history?
"Are you saying that banks WANT to lend hundreds of thousands to people who don't risk any of their own money or demonstrate a responsible credit history?"
Well actually, yes I am. At the time lenders could care less if you repaid your loan or not because the loan originator had no intention of servicing it. Before the ink was dry your loan would be bundled up with others and traded on the secondary market. The subprime borrower was in essence a necessary evil because they provided liquidity to the market. As long as housing prices continued to climb everyone was making money. When housing prices crashed the entire house of cards came tumbling down.
You can blame ACORN and minorities all you want Sean but you're only looking at a small part of a larger picture. There were no unwilling participates... period.
I would be happy, at this point, if the we would recognize that congress had some part of the blame. Can we compromise on that at least? the problem is that these policies are continuing and the same people are still pushing for first time borrower credits, lower rates, etc. Some never learn (or admit a mistake).
Pompom's ,deservingly so:)Go RAC!
Some thing to sleep on. http://www.nytimes.com/2009/10/05/business/economy/05simmons.html
http://www.nytimes.com/2009/10/05/business/economy/05simmons.html
Absolutely Congress payed a roll - a very large roll. As did the Fed, Wall Street, etc, etc, etc.
Sean, :) !!!
Ric,Why are you calling on Sean? Do the research and then comment on what YOU gathered. Not Sean!
Jo #1). Sean is my brother and I love him dearly. #2). I don’t have to justify anything I comment on this blog to you. #3). I did do my research. And #4). Jo, just because I can! ;)
I find RAC highly intellectual. I back a lot of his thoughts. I feel that you rely on Sean...which you have always done in the past. Convenience seems to be the way you roll.
Jo - is your commentary productive in any way? We're talking about ideas here... whenever we get into personal feedback it generally doesn't turn out for the best.
RAC, you mentioned earlier that loan originators had no intention of sevicing the loans. Before the sub-prime market was created, there was no reason to sell off loans. This is a result of the government policies, not a market for bundling that came from the industry itself.
I'm not 100% sure of this but I doubt mortgage holders were bunding and selling loans before the C.R.A.
This is a DC blog. Personal feedback has a lot to do with this whole process. If we don't say how we feel(which we are entitled to) then why log on? Stay off if one can't take the heat or the coolness ,then log off. I feel that it is productive to bring certain things up.You and others might not want to address these ideas but,I do.
Sean, you could very well be right. It may also be the sub-prime market was specifically created to serve the secondary market. At this point it's like asking what came first, the chicken or the egg. Either way it turned out to be an extremely lucrative market... for awhile anyway.
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