Skip to comments.A Poisonous Cocktail
Posted on 10/06/2009 12:50:23 AM PDT by bruinbirdman
Expanding the Community Reinvestment Act
As we try to shake off the financial crisis, here's a bright idea. Take a law that has led to the writing of an enormous amount of bad mortgages and expand it. Then take enforcement away from bank examiners and give it to housing activists.
Sound like a poisonous cocktail? Well, it is what the Obama administration and Democrats are currently stirring up on Capitol Hill.
The White House and Congress want to expand a 30-year-old law--the Community Reinvestment Act--that helped to fuel the mortgage meltdown. What the CRA does, in effect, is compel banks to seek the permission of community activists to get regulatory approval for bank expansions and mergers. Often this means striking a deal with activist groups such as ACORN or unions like the Service Employees International Union (SEIU) and agreeing to allocate credit to poor and minority areas that are underserved.
For all the talk of unsold condos in Miami and foreclosed McMansions in California, the epicenters of the mortgage crisis are inner-city urban areas--precisely those areas where the CRA was most applicable. As the Boston Federal Reserve put it in a massive 2008 study, "In the current housing crisis foreclosures are highly concentrated in [urban] minority neighborhoods." The study found that borrowers in these areas were seven times more likely to be foreclosed on than the general population. Analysis by the Pew Research Center and another by The New York Times found that mortgage holders in these areas had foreclosure rates four times higher than the national average.
(Excerpt) Read more at forbes.com ...
A hard rain is gonna fall..
Round one didn’t bring us to our knees. Time for another dose, from the lisping homo, and his cracker compatriots.
It will be difficult for banks to do much mortgage lending to subprime borrowers in the inner city because there’s no market for securitized subprime mortgages. That market imploded a few years ago and nobody will buy those securitized mortgages except the Fed, and there are limits to how much mortgage-backed securities (MBS) the Fed will buy. I doubt that the federal government can force banks to destroy their companies through bad lending. They did a lot of bad lending in 2002-2005 because they could sell nearly all of the loans to “investors” through MBS, but that scam is over now. So any new legislation is not going to have that big of an impact, although it’s still a terrible idea.
A major cause of the financial crisis is simply that after a 60 year rally in home prices, almost everybody got overoptimistic about the real estate markets and home prices and many banks were way too aggressive in mortgage lending. That euphoric overoptimism, when people start saying “the rally will never end”, is a classic sign of an overbought market ready to top out and collapse.
Obama's battle against banks has a long history. In 1994, freshly out of Harvard Law School, he joined two other attorneys in filing a lawsuit against Citibank, the giant mortgage lender. In Selma S. Buycks-Roberson v. Citibank, the plaintiffs claimed that although they had ostensibly been denied home loans "because of delinquent credit obligations and adverse credit," the real culprit was institutional racism. The suit alleged that Citibank had violated the Equal Credit Opportunity Act, the Fair Housing Act and, for good measure, the 13th Constitutional Amendment, which abolished slavery. The bank denied the charge, but after four years of legal wrangling and mounting legal bills, elected to settle. According to court documents, the three plaintiffs received a total of $60,000. Their lawyers received $950,000.
The CRA is not about community development; it is, essentially, affirmative action in lending. Trillions in loans are now to be made not on the basis of whether they can be paid back but to meet CRA goals. This is precisely what we need to get away from. Drinking this potent cocktail would be dangerous to our financial health.
Hussein's fingerprints all over this mess. And he got next to no money for his clients, but enriched his bar buddies to the tune of nearly a million bucks. What a foul stench this has.
If you are interested in a quick study of the CRA, click on the Flag.
...if not, keep on scrollin'
Obama wants to take enforcement of the CRA away from the Federal Reserve, the FDIC and other financial regulators who at least try to weigh bank safety and soundness when enforcing the law, and turn it over to a newly created Consumer Financial Protection Agency (CFPA). This agency's core concerns would not be safety and soundness but, in the words of the Obama administration, "promoting access to financial services," which is really code for forcing banks to lend to those who would not ordinarily qualify.
Compliance would no longer be done by bank examiners but by what the administration calls "a group of examiners specially trained and certified in community development" (otherwise called community activists). The administration says, in its literature about the reforms, that "rigorous application of the Community Reinvestment should be a core function of the CFPA."
For good measure, Obama's plan also calls for the CFPA to work closely with the Department of Justice to combat perceived discrimination in lending.