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

[Aristotelian]

Ollie: "Well, here's another nice mess you've gotten me into."

[Aristotelian]

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

[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.

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.

[RightWhale]

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

[ken5050]

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..

[org.whodat]

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.

[Gritty]

[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.

[SeaHawkFan]

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.

[AmericaUnite]

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.

[AmericaUnite]

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.

[MattinNJ]

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.

[Enchante]

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.

[djwright]

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.

[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.

[Chode]

do I really have to say it???

[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.

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

[gesully]

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.

[Dick Bachert]

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.

[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? 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.