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The Subprime Mortgage Mess and the Carter-Era Community Reinvestment Act of 1977
Larry Kudlow Show WABC -AM Radio | March 29, 2008 | Larry Kudlow and Steve Moore

Posted on 03/29/2008 8:33:45 AM PDT by Aristotelian

As a source of the current subprime mortage mess, economist Larry Kudlow and Wall Street Journal editorial board member Steve Moore point to the Carter-era Community Reinvestment Act (CRA) of 1977, which purported to prevent "redlining" -- that is, the denial of mortgages to minority borrowers -- by pressuring banks to make home loans in "low- and moderate-income neighborhoods."

The two economists, speaking today on Larry Judlow's weekly radio show, noted how the CRA was the creation of the same liberal political establishment that is now blaming banks and Wall Street for the subprime mortgage crisis.

The connection between bad loans and the CRA was noted in an earlier FreeRepublic thread: How government makes things worse Boston Globe ^ | March 9, 2008 | Jeff Jacoby http://www.freerepublic.com/focus/f-news/1982895/posts

The article stated:

The subprime mortgage collapse is another tale of unintended consequences.

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." Under the act, banks were to be graded on their attentiveness to the "credit needs" of "predominantly minority neighborhoods." The higher a bank's rating, the more likely that regulators would say yes when the bank sought to open a new branch or undertake a merger or acquisition.


TOPICS: Your Opinion/Questions
KEYWORDS: jimmycarter; kudlow; mortgage; subprime
Ollie: "Well, here's another nice mess you've gotten me into."
1 posted on 03/29/2008 8:33:46 AM PDT by Aristotelian
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To: Aristotelian

According to Kudlow, the CRA was also aimed at helping illegal aliens get mortgages. Holy cow!!! This story just gets better and better.


2 posted on 03/29/2008 8:40:37 AM PDT by Aristotelian ("I have a million ideas. The country can't afford them all." Hillary Clinton)
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To: Aristotelian

IMO, a big part of the problem was the govt exempting gains on home sales from income. I know I made money selling homes whenever I had to move for my job (which was too often) and I sure didn’t put it back into a down-payment. I think that contributed to people leveraging their homes more.

I know I never paid more than 20% down on a home even though I could have. I put the money in the bank and borrowed the rest.


3 posted on 03/29/2008 8:41:17 AM PDT by GourmetDan (Eccl 10:2 - The heart of the wise inclines to the right, but the heart of the fool to the left.)
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To: Aristotelian

We’re not supposed to talk about this. The Watchdog mentioned it. Let’s concentrate on Lights Out Earth Day.


4 posted on 03/29/2008 8:43:59 AM PDT by RightWhale (Clam down! avoid ataque de nervosa)
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To: Aristotelian
FYI...I'm fairly sure that in his first SOTU speech, ( the one before 9/11) Bush proposed a federal program to help poor first time home buyers with their down payment..so blame is all around for this mess..

Simply put, if you "buy" with NO money, you don't really OWN it..it's more a rent to buy..

5 posted on 03/29/2008 8:47:06 AM PDT by ken5050
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To: Aristotelian
Going back to 77 to scape goat borrowers and not lenders, that is a big stretch. Unless you think those thousands of $200,000 plus homes in Las Vegas were in a red-lined district. And then all of the home flippers and real estate agent and appraisal fraud was done by black people. This whole theory likes common sense and is really short on facts to prove anything.
6 posted on 03/29/2008 8:48:00 AM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: Aristotelian

7 posted on 03/29/2008 8:50:33 AM PDT by Gritty (Regulation isn't a 'solution' of anything. It's merely what politicians always propose.-W Murchison)
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To: org.whodat
This point is government interference in the free market laid the basis for the subprime loan mess in that the CRA of 1977 required banks to lower their mortgage standards.
8 posted on 03/29/2008 8:54:01 AM PDT by Aristotelian ("I have a million ideas. The country can't afford them all." Hillary Clinton)
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To: Aristotelian

The CRA has nothing to do with the sub-prime mess. There was a real problem and biases in granting qualified borrowers at that time. If the CRA is in any way to blame for the current mess, it would have happened a long time ago.

This current mess was caused by greedy lenders making loans they knew or should have know were not based on an accurate picture of the borrowers’ financial states.


9 posted on 03/29/2008 8:57:14 AM PDT by SeaHawkFan
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To: Aristotelian
Listening now to the show now.

I have to show this to my neighbor who knows someone (her friend's brother) who went to "work" for ACORN. He claimed he made enough money.

Acorn has been suing Garden City, Long Island, NY to have low income housing. I'd like to have a mansion there, too. That's just what I'd not want for my kids, is to be the poor kid in a rich town.

10 posted on 03/29/2008 8:57:36 AM PDT by AmericaUnite
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To: Aristotelian
I became a homeowner in 1985 with a 13% mortgage. Variable rate was available. After 17-18% rates 13% was great. No chance I'd ever trust an unfixed rate. When rates came down enough, we refinanced.

Now listening to Larry's show this practice of variable rate came about because the CRA. Adjustable rate is gambling.

11 posted on 03/29/2008 9:03:14 AM PDT by AmericaUnite
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To: Aristotelian
I know I am about to get dogpiled on because of Kudlow's immigration stance, but I think he would make a terrific Veep. I was an economics major and never understood the economy until I started listening to him on Saturday mornings.

If he had an audience the size of Limbaugh, this country would be in a lot better shape.

12 posted on 03/29/2008 9:08:06 AM PDT by MattinNJ ("Conservatives" will stay home in November and hand the socialists the election. Unbelievable.)
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To: Aristotelian

If CRA were the main problem wouldn’t huge issues have shown up long before now? As I understand it (but I don’t follow this closely) the big problems arose from (1) unethical (and illegal) practices of inaccurate documents, etc. that misled investors who buy up paper that is re-sold in financial instruments; (2) so many risky loans were not identified as such and as they were transferred and re-sold throughout the financial markets and over to Europe there were all kinds of huge liabilities spread far and wide that were not recognized as such. Of course there must have been plenty of people in “the industry” who knew what crap they were peddling, but as long as they could send it onward to be someone else’s problem they didn’t worry about it.


13 posted on 03/29/2008 9:08:24 AM PDT by Enchante (Hillary's 3 am phone calls will say that Bill is "ridin' dirty" with a barmaid on the DC Mall)
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To: Aristotelian

I heard it was the changes to the CRA back in the 90s that were the root of the problems.

It is funny to me that people don’t see how changes to lending practices caused the bubble, lowering down payments, allowing interst only loans etc. That actaully drove prices up.

It now must find the real market value.


14 posted on 03/29/2008 9:08:39 AM PDT by djwright (I know who's my daddy, do you?)
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To: SeaHawkFan

They were not greedy lenders. They were forced by left wing groups like ACORN to make bad loans or be shut down because of this law.


15 posted on 03/29/2008 9:09:31 AM PDT by MattinNJ ("Conservatives" will stay home in November and hand the socialists the election. Unbelievable.)
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To: Aristotelian
Image hosted by Photobucket.com do I really have to say it???

16 posted on 03/29/2008 9:11:50 AM PDT by Chode (American Hedonist )
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To: Aristotelian
This point is government interference in the free market laid the basis for the subprime loan mess in that the CRA of 1977 required banks to lower their mortgage standards.

Yes, and my point was that I doubt that the 1977 act would account for more than 10% of the current problems.

17 posted on 03/29/2008 9:12:48 AM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: org.whodat
He is absolutely right. By the way, the CRA of 77 was amended in 1995.

In order to meet the requirements to loan to risky borrowers/low income households, banks came up with innovative loans like ARM's, no-doc loan, stated income and so on. When the housing boom of the late nineties and 2 thousands came about many used these loans to buy their houses. They just had to get on the own-a-home bandwagon.

Once on it they could just refinance over and over again as the house increased in value, extracting equity to buy nifty cars, tv's and world cruises. Unfortunately the boom went bust.

18 posted on 03/29/2008 9:36:16 AM PDT by gesully (gesully)
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To: Aristotelian

Yep.

Just when I thought the Carter-Church denial of on-the-ground human intelligence gathering from “unsavory characters” (only from church-going choir boys), comes now yet another set of Carter buzzards home to roost.


19 posted on 03/29/2008 9:46:06 AM PDT by Dick Bachert
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To: Aristotelian
The question is, who started this swindle? Realtors sold over priced homes to people who could not afford to pay for the property. The loans were approved by lending agencies, why? When the bill comes due the homes are in foreclosure. This had to be a big time scam. Who is looking for the crooks? The government is bailing everyone out and we are paying for it. There is something wrong with this picture.
20 posted on 03/29/2008 9:55:01 AM PDT by ANGGAPO (LayteGulf BeachClub)
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To: ANGGAPO
And to reply to my own post. I would like to see someone's head on a pike over this shakedown of the sheeple.
21 posted on 03/29/2008 10:02:37 AM PDT by ANGGAPO (LayteGulf BeachClub)
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To: GourmetDan

So you think the problem was we weren’t paying enough taxes?


22 posted on 03/29/2008 10:07:02 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: MattinNJ
They were not greedy lenders. They were forced by left wing groups like ACORN to make bad loans or be shut down because of this law.

Not hardly. In our area, house prices are up an inflation-adjusted (and unsustainable) 200% across the board. That was the lenders trying to make big loans, not loans to poor people, and it's biting all of us because all those big loans have no value behind them. With those mortgages being traded at par, they corrupt the value of all dollars.

23 posted on 03/29/2008 10:09:13 AM PDT by Grut
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To: Aristotelian
This point is government interference in the free market laid the basis for the subprime loan mess in that the CRA of 1977 required banks to lower their mortgage standards

That, however, does not accout for the idiocy throughout the entire market where $400,000 houses were being sold for $800,000 borowed in the form of mortgages that even a couple with good paying jobs could never afford after the "interest-only" grace period expired.

Why would a lender make such a foolish loan?

Because they were not lending their own money. They turned right around and sold those mortgages to foolish investor and made their money on commission fees.

24 posted on 03/29/2008 10:09:31 AM PDT by Polybius
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To: Aristotelian

Wow - Carter was President for only 4 years, and not only us, but the whole world is still paying for it! Iran, Zimbabwe to name a few....


25 posted on 03/29/2008 10:14:29 AM PDT by PGR88
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To: MattinNJ

>>They were not greedy lenders.
>>They were forced by left wing groups
>>like ACORN to make bad loans or be
>>shut down because of this law.

Oh Baloney. Who forced Roland Arnall to give up Long Beach Savings’ banking license and turn the institution into Ameriquest, the flagship of the Subprime industry?

Congress may have created the opportunity, but it was greedy power mongering parasites like Arnall and his imitators who exploited it.


26 posted on 03/29/2008 10:19:59 AM PDT by LomanBill (My President was Richard Nixon.)
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To: ANGGAPO
The question is, who started this swindle? Realtors sold over priced homes to people who could not afford to pay for the property. The loans were approved by lending agencies, why?

To make money.

See Post 24.

The lenders sold those mortgages to gullible investors, maybe even the manager of one the mutual funds in your 401K.

The lenders made money on commissions instead of on the interest of the loan. If the buyer's finances crashed and burned when the interest-only grace period expired, that was the investor's problem and not the original lender's problem. Instead of carefully lending out their own money, lenders were recklessly lending out other people's money in order to pockets the commissions they charged for each mortgage.

The realtors made money on commissions. If the buyer's finances crashed and burned when the interest-only grace period expired, that was the buyer's problem.

The buyers paid $800,000 for $00,000 house on terms they could never repay.

The investors bought $800,000 mortgages backed by nothing but a promise to pay from individuals who could never afford to pay that much.

The U.S. taxpayers are now being urged to foot the bill to bail out the foolish buyers and the foolish investors.

27 posted on 03/29/2008 10:29:11 AM PDT by Polybius
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To: Aristotelian

Home Americans just won’t live in?


28 posted on 03/29/2008 10:46:39 AM PDT by tbw2 ("Sirat: Through the Fires of Hell" by Tamara Wilhite - on amazon.com)
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To: PGR88

I never really thought about it that way but you’re right. Carter’s 4 years and we’re still in hock.


29 posted on 03/29/2008 11:39:47 AM PDT by Aristotelian ("I have a million ideas. The country can't afford them all." Hillary Clinton)
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To: Aristotelian
I never really thought about it that way but you’re right. Carter’s 4 years and we’re still in hock.
Hmmm... Now that you mention it -- how could the Panama Canal Zone giveaway bite us on the hindquarters?

Peet
30 posted on 03/29/2008 12:43:44 PM PDT by Peet (Insert clever phrase here.)
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To: ANGGAPO
The question is, who started this swindle?

ADDI?

31 posted on 03/29/2008 12:58:49 PM PDT by EVO X
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To: Aristotelian

And it just took 30 years to kick in? Give me a break!


32 posted on 03/29/2008 1:01:21 PM PDT by Non-Sequitur
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To: MattinNJ
They were not greedy lenders. They were forced by left wing groups like ACORN to make bad loans or be shut down because of this law.

Oh bullshit. That law is 30 years old and no law can force a lender to deal with someone unqualified for the loan. No law forced the creation of negative amortization mortgages or zero principle mortgages or mortgages for 115% of the homes value. The mortgage industry itself did that. And it was greed that is the cause. Greed on the part of the borrowers and a whole lot of greed on the part of the lenders. The simple fact is for 15 years the mortgage brokers made a boatload of money on the refinancing boom after the rates broke in the 1990's. Those of us in middle age remember that between 1978 and 1991 the mortgage rates stayed in double digits. Then broke in the 90's and people refinanced at a lower rate. Then refinanced again and again as rates continued to drop. A whole lot of people made a whole lot of money off that refinancing people who's credit was good and who's houses had appreciated. Then rates stablized about 5 years ago and suddenly all the people with good credit were locked into low interest fixed morgages and weren't clamoring to refinance any more. So that's when the companies went after the dregs. Those who they hadn't dealt with before, the sub-prime folks. That's when all the wacky mortgage schemes were launched, just so the companies could continue to lend to anyone and keep those fees rolling in. They took risks that the rates weren't priced for, with people they had no rational reason for dealing with, and it bit them in the butt. And not they come screaming to the government for a handout, and blame everyone but themselves for their problems.

33 posted on 03/29/2008 1:16:01 PM PDT by Non-Sequitur
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To: Non-Sequitur

your last post makes more sense than most on this thread


34 posted on 03/29/2008 2:25:55 PM PDT by going hot (Happiness is a momma deuce)
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To: gesully
In order to meet the requirements to loan to risky borrowers/low income households, banks came up with innovative loans like ARM's, no-doc loan, stated income and so on.

That statements really border line. I only know of one couple, personally, that were loaded up on an arm mortgage, and they were sold a line of BS by the Realtor and builder about buy today, when the mortgage resets you can sell at a profit and have a bigger down payment next time. My advice to them was to sell and get out of the deal and then find an attorney to collect off of the builder and real estate broker. Make a good test case.

35 posted on 03/29/2008 3:34:15 PM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: Aristotelian

I read something that said many sub-prime were minority borrowers. Sub-prime is a new term, it was not used in 1977, IIRC. There is some truth in this argument. That said, Bush has pushed for increased homeownership too, though not in such a stupid way as the CRA. In the end, the Dems are the bigger causes of giving loans to unworthy borrowers.


36 posted on 03/30/2008 7:42:40 AM PDT by PghBaldy (Obama disses his white grandma to lift up Wright. He is a pig.)
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To: Aristotelian
Do you remember who the guest was in the third hour who was tying Obama to the sub-prime mortgage / Community Reinvestment Act?

He was also speculating that Tony Rezko might have made money off of the CRA legislation.

It wasn't the guy from Politico dot com, it was the other guest.

37 posted on 03/31/2008 5:55:36 PM PDT by Dajjal
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To: Dajjal

I frankly wasn’t playing attention then. But wasn’t one of the guests the guy from RealClearPolitics?


38 posted on 03/31/2008 8:25:23 PM PDT by Aristotelian ("I have a million ideas. The country can't afford them all." Hillary Clinton)
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To: Aristotelian
I frankly wasn’t playing attention then. But wasn’t one of the guests the guy from RealClearPolitics?

Thank you! You are correct. ... But now I'm wondering whether I got that mixed up with "politico" and that it's still the "other guy" who was taking about Obama & the RCA.

He always has the same two guys on every final hour, so I guess I'll just have to wait until next Saturday.

Kudlow seemed interested in the link. I guess if the story has any legs, he'll bring it up again.

39 posted on 03/31/2008 9:04:04 PM PDT by Dajjal
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To: traviskicks

ping


40 posted on 03/31/2008 9:06:56 PM PDT by murphE (I refuse to choose evil, even if it is the lesser of two)
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To: murphE; Abathar; Abcdefg; Abram; Abundy; akatel; albertp; AlexandriaDuke; Alexander Rubin; ...
Libertarian ping! To be added or removed freepmail me or post a message here.
41 posted on 04/01/2008 1:16:54 PM PDT by traviskicks (http://www.neoperspectives.com/Ron_Paul_2008.htm)
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To: Non-Sequitur

Outstanding post, sir...


42 posted on 04/01/2008 1:44:44 PM PDT by bamahead (Avoid self-righteousness like the devil- nothing is so self-blinding. -- B.H. Liddell Hart)
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To: GourmetDan
IMO, a big part of the problem was the govt exempting gains on home sales from income. I know I made money selling homes whenever I had to move for my job (which was too often) and I sure didn’t put it back into a down-payment. I think that contributed to people leveraging their homes more.

Bingo.

43 posted on 04/01/2008 5:03:01 PM PDT by Gondring (I'll give up my right to die when hell freezes over my dead body!)
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