CRA looking back

Mav88 · Jul 31, 2011

I know we are sick of this, but in reading seeking alpha this chart really sticks out

Notice the keys years, especially 1994. 1998 and 2004 were also important. I can't quite figure 1998 out except that the markets and growth were really hot then. 2004 is interesting, W was calling for more home ownership among the poor and minorities while at the same time overall ownership went down. He sure got his wish. It sure is destructive fast when republicans actually side with liberals.

But what happened in 1994? That was key, when it all really started. We know that CRA went through several makeovers over the years with some more important than others. 1992-1994 was Slick Willie's liberal years, before he was forced to the political center in 1995 by the elections. It was a time of liberal activism from Hillary on down. It is important to understand that acts like CRA are only as good as the enforcement of them and the willingness of people to try and accomodate the proponents. By stating that less than half of the shitty loans late in the boom fell under CRA does not mean CRA wasn't influential. This article has some good points on that http://www.businessinsider.com/thre...countrywide-to-lower-lending-standards-2009-6

but what is most important in that article is that it explains what happened in 1994.

To meet their goals, the two mortgage giants enlisted large lendersâincluding nonbanks, which werenât covered by the CRAâinto the effort. Freddie Mac began an âalternative qualifyingâ program with the Sears Mortgage Corporation that let a borrower qualify for a loan with a monthly payment as high as 50 percent of his income, at a time when most private mortgage companies wouldnât exceed 33 percent. The program also allowed borrowers with bad credit to get mortgages if they took credit-counseling classes administered by Acorn and other nonprofits. Subsequent research would show that such classes have little impact on default rates.

Pressuring nonbank lenders to make more loans to poor minorities didnât stop with Sears. If it didnât happen, Clinton officials warned, theyâd seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA âamong the most egregious redliners.â To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown.

The smoking gun, and so typical. Liberalism is financially more destructive than war. Surely there is blame for things that happened in 1999, but would repeal of glass-steagall have even been on the table were it not for the push in subprime? When Republicans and others who know better play this game of 'can't beat em so join em', we get economic destruction. I can just see a bunch of bankers giving up on fighting assholes like Maxine Waters.

377OHMS · Jul 31, 2011

What happened in 1994 is that the Fed failed to raise interest rates when the housing market overheated. Seems George Bush managed to gain control over the Fed which happily gave up its independent role.

Rates have never increased since. The primary control-feedback mechanism used to regulate the economy has become corrupt.

Obama continues that legacy and has the pedal mashed to the floor. Its been going on so long that an external defacto controller has emerged, namely Moody's and other raters.

Shame on the Fed. Shame on George Bush. Shame on Barrack Obama.

Just my opinion of course.

I flipped two homes at the peak so its not like I didn't take advantage. On the first I realized 300%+ appreciation and the second almost 10%. I partnered with an agent friend and got the referrals sent to him and he split the referral fee with me so I basically beat the brokers as well.

Covertibility · Jul 31, 2011

CRA had no impact on the Panic of '08. The Fed has already done the empirical work to prove it. This is basically a partisan issue whereby the corporate socialists (republicans) are doing the bidding of the banks and trying to remove the CRA so the banks can charge higher rates on loans to the poor. Thats it.

Lucrum · Jul 31, 2011

Quote from Covertibility:

This is basically a partisan issue whereby the corporate socialists (republicans) are doing the bidding of the banks and trying to remove the CRA so the banks can charge higher rates on loans to the poor. Thats it.

If the loans to the "poor" are higher risk then higher rates SHOULD be charged dopey.

jem · Jul 31, 2011

the real sick thing is look at the percentage of less than 3% down and percentage right now.

we are replacing weak hands with weaker hands. There is no base underneath this market... prices go down and even the recent buyers will walk.

the govt needs to get the hell out of the real estate market and let the zombie banks go away.

Artful D0dger · Jul 31, 2011

LOL! The fed did "empirical work" to prove that a federal program wasn't the culprit? Gee, that's not suspicious.

The CRA was one of the major causes of the housing meltdown. The were giving minorities loans in exchange for signed statements that they could pay in some cases. The default rate among minorities was 2x of the average rate.

That's what happens when you give out loans based on racial preference schemes instead of creditworthiness.

Quote from Covertibility:

CRA had no impact on the Panic of '08. The Fed has already done the empirical work to prove it. This is basically a partisan issue whereby the corporate socialists (republicans) are doing the bidding of the banks and trying to remove the CRA so the banks can charge higher rates on loans to the poor. Thats it.

Mav88 · Jul 31, 2011

CRA had no impact on the Panic of '08. The Fed has already done the empirical work to prove it. This is basically a partisan issue whereby the corporate socialists (republicans) are doing the bidding of the banks and trying to remove the CRA so the banks can charge higher rates on loans to the poor. Thats it.

You missed the whole point here, and people with higher risk SHOULD pay more interest as that is exactly how a loan market works. What the hell are the poor doing taking out home laons anyway?

I said the fingerprints of CRA were not directly on the majority of loans, however CRA clearly was the catalyst that started it in 1994 as well as a force behind it the whole way to 2007. I don't expect the feds to dig very deep into the hows and whys, they are the same people who gave us this mess. The match that lit the rocket was the banks giving in to liberal politicians in 1994 under the political agenda that CRA generated. Later came all the securitization, derivatives, Li algorithm, etc., but that was in response to the original cause.

Mav88 · Jul 31, 2011

What happened in 1994 is that the Fed failed to raise interest rates when the housing market overheated. Seems George Bush managed to gain control over the Fed which happily gave up its independent role.

Rates have never increased since. The primary control-feedback mechanism used to regulate the economy has become corrupt.

Obama continues that legacy and has the pedal mashed to the floor. Its been going on so long that an external defacto controller has emerged, namely Moody's and other raters.

Shame on the Fed. Shame on George Bush. Shame on Barrack Obama.

Just my opinion of course.

I flipped two homes at the peak so its not like I didn't take advantage. On the first I realized 300%+ appreciation and the second almost 10%. I partnered with an agent friend and got the referrals sent to him and he split the referral fee with me so I basically beat the brokers as well.

Impedance of free space, You must have meant 2004 and 1994. Clinton was president in 1994 and neither the housing market nor the economy was overheated. The key is 1994, that's the genesis.

377OHMS · Jul 31, 2011

Quote from Mav88:

Impedance of free space, You must have meant 2004 and 1994. Clinton was president in 1994 and neither the housing market nor the economy was overheated. The key is 1994, that's the genesis.

Ouch, yes I meant 2004. Slipped an entire decade there making my post irrelevant. Sorry.

ProfitMagnet · Aug 1, 2011

The question is do lenders have a limit on risk they can take on a certain borrower? If they take on the risk and then just pass it to the next man, it doesn't matter how much the riskier investment pays, it it defaults the economy is off balance.

Quote from Mav88:

You missed the whole point here, and people with higher risk SHOULD pay more interest as that is exactly how a loan market works. What the hell are the poor doing taking out home laons anyway?

I said the fingerprints of CRA were not directly on the majority of loans, however CRA clearly was the catalyst that started it in 1994 as well as a force behind it the whole way to 2007. I don't expect the feds to dig very deep into the hows and whys, they are the same people who gave us this mess. The match that lit the rocket was the banks giving in to liberal politicians in 1994 under the political agenda that CRA generated. Later came all the securitization, derivatives, Li algorithm, etc., but that was in response to the original cause.