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.
According to Kudlow, the CRA was also aimed at helping illegal aliens get mortgages. Holy cow!!! This story just gets better and better.
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.
We’re not supposed to talk about this. The Watchdog mentioned it. Let’s concentrate on Lights Out Earth Day.
Simply put, if you "buy" with NO money, you don't really OWN it..it's more a rent to buy..
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.
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.
Now listening to Larry's show this practice of variable rate came about because the CRA. Adjustable rate is gambling.
If he had an audience the size of Limbaugh, this country would be in a lot better shape.
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.
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.
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.
Yes, and my point was that I doubt that the 1977 act would account for more than 10% of the current problems.
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.
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.
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