0bama's role in subprime housing bubble

[Saddle Bronc 124]

http://www.telegraph.co.uk/comment/columni...bama-built.html

This is the sub-prime house that Barack Obama built

As a young but influential Chicago politician, the American president helped to create the housing bubble.

By Christopher Booker

Last Updated: 2009/01/31 17:34

It is all very well for President Obama to vent his anger on all those US bankers who continued to claim billions of dollars in bonuses while expecting Washington to bail them out after the sub-prime mortgage scandal brought the banks to their knees. But conveniently overlooked has been the curious part Mr Obama himself played in the sub-prime debacle.

At the heart of it was a 1995 amendment to the Community Reinvestment Act which legally required banks to lend money to buy homes to millions of poor, mainly black Americans, guaranteed by the two biggest mortgage associations, Fannie Mae and Freddie Mac. And no one campaigned more actively for this change to the law than Mr Obama, as a young but already influential Chicago politician.

It was this Act which, more than anything, helped to create the US housing bubble, well beyond the point where it was obvious that hundreds of thousands of homeowners would be likely to default. And in 2005 no one more actively opposed moves to halt Fannie Mae's reckless guarantees than Senator Obama, as he was by then. As the official records show, no senator received more donations from Fannie Mae than he did (although Hillary Clinton ran him close). Thus no US politician arguably did more to promote the sub-prime disaster than the man now expected to pick up the pieces, Rather like Gordon Brown, really.

[alienlovechild 75]

As the official records show, no senator received more donations from Fannie Mae than he did (although Hillary Clinton ran him close). Thus no US politician arguably did more to promote the sub-prime disaster than the man now expected to pick up the pieces, Rather like Gordon Brown, really.

That was reported during the campaign but nobody cared to listen. The GOP was going to get the most of the blame because the man in the street points the finger at whomever is in the White House first. There are more than few people questioning Obama's judgement on the stimulus package but it's a little late. The irony is Obama was a visible part of the problem now he wants us to trust him again on the solution. His motto went from hope and change to roll the dice and pray.

[one...two...tree 2,762]

Oh geez....here we go again with the Community Reinvestment Act. The Right Wingers have been trying to pin the blame on that for awhile now - blamed Clinton too and any other Democrat that supported it.

......

CRA as a scapegoat

I think we can agree that a complex interplay of risky behaviors by lenders, borrowers, and investors led to the current financial storm. To be sure, there's plenty of blame to go around. However, I want to give you my verdict on CRA: NOT guilty.

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Point of fact: Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.

You've heard the line of attack: The government told banks they had to make loans to people who were bad credit risks, and who could not afford to repay, just to prove that they were making loans to low- and moderate-income people.

Let me ask you: where in the CRA does it say: make loans to people who can't afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth ... pure and simple.

CRA isn't perfect. But it has stayed around more than 30 years because it works. It encourages FDIC-insured banks to lend in low and moderate income (or LMI) areas, and I quote, -"consistent with the safe and sound operation of such institutions".

Another question: Is lending to borrowers under terms they can not afford to repay "consistent with the safe and sound operations"? No, of course not.

CRA always recognized there are limitations on the potential volume of lending in lower-income areas due to safety and soundness considerations. And, that a bank's capacity and opportunity for safe and sound lending in the LMI community may be limited.

That is why the CRA never set out lending "target" or "goal" amounts. That is why CRA supporters, many of you here today, have labored for three decades to figure out how to do it safely. It makes no sense to give a loan to someone under terms you know they can't pay back. That's a set up for failure.

Despite our current problems, the homeowner is still one of the best credit risks in the world. Today, the delinquency rate on all home mortgages is only 3.6 percent. For subprime loans, there is a stark difference in the type of loan. The rate of seriously delinquent subprime fixed rate loans is a little more than one-third the rate for subprime adjustable rate mortgages.

Any family willing to work, save money, pay the mortgage on their house is a sound basis of credit and a sound basis for America.

So let the record show: CRA is not guilty of causing the financial crisis.

http://www.usnews.com/blogs/the-home-front/2008/12/17/sheila-bair-stop-blaming-the-community-reinvestment-act.html

[alienlovechild 75]

Bair is covering her own butt with excuses.

Let me ask you: where in the CRA does it say: make loans to people who can't afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth ... pure and simple.

So CRA just went with the flow of cheap money and loose loan standards.

CRA isn't perfect. But it has stayed around more than 30 years because it works. It encourages FDIC-insured banks to lend in low and moderate income (or LMI) areas, and I quote, -"consistent with the safe and sound operation of such institutions".

Like the sound lending practices of major banks needing billions for a bailout. That's not reassuring.

CRA always recognized there are limitations on the potential volume of lending in lower-income areas due to safety and soundness considerations. And, that a bank's capacity and opportunity for safe and sound lending in the LMI community may be limited.

Most of the homes will be worthless as few will want to move into this areas, especially anyone with enough money to buy a house.

Despite our current problems, the homeowner is still one of the best credit risks in the world. Today, the delinquency rate on all home mortgages is only 3.6 percent. For subprime loans, there is a stark difference in the type of loan. The rate of seriously delinquent subprime fixed rate loans is a little more than one-third the rate for subprime adjustable rate mortgages.

The delinquency rate was about 1% so things got worse. The problem is the defaults are more intense in some states and some neighborhoods are ghost towns.

[justashooter 430]

Oh geez....here we go again with the Community Reinvestment Act. The Right Wingers have been trying to pin the blame on that for awhile now - blamed Clinton too and any other Democrat that supported it.

So let the record show: CRA is not guilty of causing the financial crisis.

[/indent]http://www.usnews.com/blogs/the-home-front/2008/12/17/sheila-bair-stop-blaming-the-community-reinvestment-act.html

"if i just close my eyes, and say it three times... there's no place like home. there's no place like home. there's no place...

[one...two...tree 2,762]

alc,

Sheila Blair is a Republican, btw.

I can't do those multiple quotes, but none of your counter arguments refuted the accuracy of the facts presented by Blair.

Fact 1 - The CRA has been around for 30 years - way before we saw a large portion of Americans defaulting on their mortgages.

Fact 2 - Only one in four (25%) of all defaulted mortgages were under the CRA.

Fact 3 - There is nothing written in the CRA which requires a financial institution to give loans to risky clients.

Those are the facts, jack. You can spin hyperbole all you want....does nothing to persuade those interested in the facts.

[alienlovechild 75]

Sheila Blair is a Republican, btw.

No kidding but it you can count on a source bent on covering their own butt. I suppose you believed everything Donald Rumsfeld said, too. You could have said something about what I wrote instead of repeating yourself but let me put it a different way.

Fact 1 - The CRA has been around for 30 years - way before we saw a large portion of Americans defaulting on their mortgages.

It didn't operate the same way for the entire 30 years. Reno's a Democrat so you must believe her. In any case the market changed in the last years and there's no denying that fact.

"Enter the Clinton co-presidency. It forced Fannie and Freddie to vastly increase their subprime lending. Clinton administration rules, especially those in 1995, created de facto quotas, forcing financial institutions to make hundreds of billions in subprime loans. Clinton’s attorney general, Janet Reno, said, “No loan is exempt, no bank is immune. For those who thumb their nose at us, I promise vigorous enforcement.”

http://www.sj-r.com/opinions/x222307523/In...to-Dem-policies

Fact 2 - Only one in four (25%) of all defaulted mortgages were under the CRA.

But 100% of CRA were supported by the Feds. The other were private losses.

Fact 3 - There is nothing written in the CRA which requires a financial institution to give loans to risky clients.

Doesn't matter Obama and company hit banks with lawsuits if they didn't comply. The obviously risky loans were made and many people defaulted blows away your "fact".

"Obama willingly took part in an ACORN-promoted lending discrimination lawsuit against (then) Citibank. Citibank lost. He has personal responsibility for (now) Citigroup’s current problems. These are Obama’s own words on Sept. 17, 2007: “Subprime lending started off as a good idea. Helping Americans buy homes who previously could not afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors and around the country, as well as around the world. In theory, this should have allowed mortgage lending to be less risky and more diversified.”

http://www.sj-r.com/opinions/x222307523/In...to-Dem-policies

Those are the facts, jack. You can spin hyperbole all you want....does nothing to persuade those interested in the facts.

Here's where you repeat your assertions louder and ignore another post.

[Saddle Bronc 124]

The CRA has been around for 30 years - way before we saw a large portion of Americans defaulting on their mortgages.

meaning the boondoggle was created by the ultra-incompetent Jimmy "el dhimmi" Carter (no surprise that anything on which he was initiator turned out to be fiasco or boondoggle)

[NickD 203]

Did Paulsen get stuck with seven shacks when blacks couldn't pay their subprime mortgages?

[one...two...tree 2,762]

Those are the facts, jack. You can spin hyperbole all you want....does nothing to persuade those interested in the facts.

Here's where you repeat your assertions louder and ignore another post.

They're not mere assertions - they are facts. If you have something that challenges those facts as inaccurate, I have yet to see it.

Here's another source that supports those facts:

CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened. Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

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

Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business."

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.

http://www.prospect.org/cs/articles?articl...subprime_crisis

[Peikko 1,575]

If in doubt, blame the Dems. Don't bother to to find out what actually went wrong and try fix it. I am sure there are people from both parties who share some burden of responsibility but most of it is down to poor business practice by lending instututions, not government initiatives to try to get low income families into home ownership.

[Rocky_nBullwinkle 6]

A.C.O.R.N.

--Bullwinkle

[one...two...tree 2,762]

A.C.O.R.N.

--Bullwinkle

Oh brother...

[alienlovechild 75]

They're not mere assertions - they are facts. If you have something that challenges those facts as inaccurate, I have yet to see it.

Choosing to ignore my comments and sources doesn't mean much especially after I go after yours with a fine tooth comb. . . for a third time.

CRA isn't the biggest problem compared to Freddie Mac and Fannie Mae and Obama raked in big campaign bucks from them.

http://www.opensecrets.org/news/2008/07/to...s-of-fanni.html

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

Do you know the difference between public and private financing? Private banks were foolish but at least they were only loosing their own money at least before the bailouts began. CRA blew the public's money so there is a difference even if you choose not to acknowledge it.

I'd go over more but I've got to go home. Chew on this and the link. It gives a broader outlook than your fixation with absolving Obama of all fault even when I didn't place on all the blame on him.

"Although the media are full of talk that we face a "crisis of capitalism," the underlying cause of the financial meltdown is something much more mundane and practical--the housing, tax, and bank regulatory policies of the U.S. government. The Community Reinvestment Act (CRA), Fannie Mae and Freddie Mac, penalty-free refinancing of home loans, tax preferences granted to home equity borrowing, and reduced capital requirements for banks that hold mortgages and mortgage-backed securities (MBS) have all weakened the standards for granting mortgages and the housing finance system itself. Blaming greedy bankers, incompetent rating agencies, or other actors in this unprecedented drama misses the point--perhaps intentionally--that government policies created the incentives for both a housing bubble and a reduction in the bank capital and home equity that could have mitigated its effects. To prevent a recurrence of this disaster, it would be far better to change the destructive government housing policies that brought us to this point than to enact a new regulatory regime that will hinder a quick recovery and obstruct future economic growth."

http://www.rgemonitor.com/us-monitor/25525...inancial_crisis

Edited February 3, 2009 by alienlovechild

[one...two...tree 2,762]

They're not mere assertions - they are facts. If you have something that challenges those facts as inaccurate, I have yet to see it.

Choosing to ignore my comments and sources doesn't mean much especially after I go after yours with a fine tooth comb. . . for a third time.

CRA isn't the biggest problem compared to Freddie Mac and Fannie Mae and Obama raked in big campaign bucks from them.

From your first response to the OP:

That was reported during the campaign but nobody cared to listen.

...and referring to that report, the assertion is that the CRA, by design, enabled, through enforcement to financial institutions, to take on risky home buyers ....which I have pointed out 4 key facts that blow a huge whole in that argument, none of which you have been able to refute beyond spinning hyperbole.

And now...you're making the argument convoluted by throwing in other issues.

If in fact, Community Reinvestment Act has, by its very design, caused financial institutions to take on high risk clients, then show it. Otherwise, concede that attacking the CRA is just another convenient tactic by Right Wingers desperately looking to scapegoat Left Wing policies for this economic crisis, to deflect all the scrutiny off of their flawed policies.

Your turn.