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The Subprime Cover-Up
Investors.com ^ | March 3, 2010 | INVESTMENT BUSINESS DAILY Staff

Posted on 03/03/2010 5:07:56 PM PST by Kaslin

Financial Crisis: As Congress crafts new banking rules to beef up the Community Reinvestment Act, the panel it picked to probe the subprime mess is discounting CRA's role in it. How convenient.

The "bipartisan" Financial Crisis Inquiry Commission kicked off its hearings this year by pillorying Wall Street. It also vowed to investigate the impact of housing policy. So far all it's done is farm out a study on the subject to a Berkeley economist pal of Phil Angelides, the commission's Democrat chairman.

Predictably, his 25-page paper concludes that the Community Reinvestment Act had no real role in the crisis, even though the anti-bank redlining regulation was strengthened and enforced like never before starting in 1995.

"I find no evidence that CRA incentives played a significant role in expanding high-risk lending during the housing bubble," said UC-Berkeley economist Dwight Jaffee.

What about the affordable-housing quotas HUD slapped on Fannie Mae and Freddie Mac? They were "secondary to profits" as a factor motivating their investments in high-risk mortgages, Jaffee advised the panel, which will use his study as a baseline for discussion and findings.

That's a shame. His analysis is riddled with flaws and suspicious omissions.

(Excerpt) Read more at investors.com ...


TOPICS: Business/Economy; Editorial
KEYWORDS: cra

1 posted on 03/03/2010 5:07:56 PM PST by Kaslin
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To: Kaslin

bm


2 posted on 03/03/2010 5:11:49 PM PST by Para-Ord.45
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To: Kaslin

Yeah, the Federal Government mandating massive numbers of mortgages issued to people with no ability or intention of ever paying their home loans had no role in the housing collapse.

Excuse me while my head explodes.

This “economist” is the usual democrat party fake scientist, like their global warming charlatans.


3 posted on 03/03/2010 5:14:45 PM PST by FormerACLUmember (The urge to save humanity is almost always a false front for the urge to rule. - H. L. Menken.)
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To: FormerACLUmember

I love how the rebuttal to what you just said always points to the fact that a significant amount of loans from the Mortgage meltdown were not part of CRA.

It still doesn’t matter. The Gov’t through Fannie, Freddie, FHA SET the market with their “no money down” loans. Reselling those loans obviously multiplied this situation.
If the Gov’t had not driven down the loan requirements the hot potato effect never really gets to take hold, IMO, because the supply won’t be there—there would be a minimal amount of “risky” loans to lump in with the rest.

I got a conventional loan in 2001, that was required at 3%. We paid more than that, but many years prior we would have had to pay 20%. What happened? The gov’t SET the market!

(I’ll take any additional information, as I know there are other people who are far more of a student of this mess than I.)


4 posted on 03/03/2010 5:22:59 PM PST by CommieCutter ("You wanted the presidency, you got it, now FIX THE DAMN ECONOMY!!!!" ----YankeeReb)
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To: Kaslin

Behold the power of the new media...


5 posted on 03/03/2010 5:25:41 PM PST by Crim
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To: Kaslin

What a load. Regulations were “secondary to profits” my @sterisk.

If real profit-motive had really been allowed to work... then real risks would’ve been assessed. As it was, risk didn’t matter.


6 posted on 03/03/2010 5:26:47 PM PST by Ramius (Personally, I give us... one chance in three. More tea?)
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To: Kaslin
I don't believe the junk loans Fannie Mae was buying were part of the CRA. But, junk they were. Debt to income ratios to 65% with 0 down payment. Really lousy credit. Balloon payments, interest only loans and adjustable rates. All were product purchased by Fannie.

This very well could be a reason why Jaffee came to the conclusion he did. But, there is little doubt that Fannie and Freddie were buying this crap because of the market the CRA established.

The same people who implemented the CRA, the ones who are truly to blame for the housing crisis, are now the ones fixing the problem...translated, killing the availability of home loans altogether, causing the housing market to sink even lower.

7 posted on 03/03/2010 5:29:40 PM PST by Rational Thought
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To: Kaslin

how about an investigation, whenever congress has honest people again?


8 posted on 03/03/2010 6:42:51 PM PST by the invisib1e hand (yeah, you can quote me.)
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To: Kaslin
suspicious omissions.

Beware the suspicious omissions.

9 posted on 03/03/2010 6:43:26 PM PST by the invisib1e hand (yeah, you can quote me.)
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To: Kaslin

Cover up is the right term! The real reason for the bank bail out was to keep them from suing for fraud. This whole mess was jammed full of fraud. Some of these fraudulent lenders were neck deep in the collusion with the political liberals. That is one reason for the takeover of Countrywide. To hide the massive fraud. Fannie and Freddy thought they could hide the fraud by bundling and selling it to Wall Street, some of whom knew exactly what they were buying while others were duped. They laid off the risk to themselves (they thought) by putting the risk on the derivatives market. They were all too willing to pick up a big payday for what they thought was almost no risk. Mortgages had been second only to treasuries in safety. However, these derivative houses were not capitalized for the amount of risk, read fraud, that they just took on. When things went south, they could pay the Wall Street investment houses what they owed and suddenly the risk was back and the risk was now a fact for Wall Street crowd. There was only two ways to recover what they lost: go after Freddy and Fannie for fraud or have the Government pay them off with a slight of hand trick.


10 posted on 03/03/2010 6:59:14 PM PST by Revolutionary ("Praise the Lord and Pass the Ammunition!")
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To: Revolutionary

Meant to say the derivative houses couldn’t pay.


11 posted on 03/03/2010 7:02:14 PM PST by Revolutionary ("Praise the Lord and Pass the Ammunition!")
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To: Kaslin

We the People..for some reason.. have a different opinion.


12 posted on 03/03/2010 7:03:44 PM PST by mo
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To: Kaslin
ANDREW CUOMO AND FANNIE AND FREDDIE

‘How the youngest Housing and Urban Development secretary in history gave birth to the mortgage crisis’

BY WAYNE BARRETT (8-05-08 Village Voice)

There are as many starting points for the mortgage meltdown as there are fears about how far it has yet to go, but one decisive point of departure is the final years of the Clinton administration, when a kid from Queens without any real banking or real-estate experience was the only man in Washington with the power to regulate the giants of home finance, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), better known as Fannie Mae and Freddie Mac.

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded “kickbacks” to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why. . .

MORE AT: http://www.villagevoice.com/content/printVersion/541234

13 posted on 03/03/2010 7:57:48 PM PST by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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To: Brad from Tennessee

Thanks for directing my attention to the Cuomo article. Hopefully, there will eventually be a full-scale investigation of the real estate collapse followed by trials, followed by legions of new federal prisoners.

At least one can dream, can’t one?


14 posted on 03/03/2010 9:40:44 PM PST by Taxman (So that the beautiful pressure does not diminish!)
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To: Rational Thought
“translated, killing the availability of home loans altogether”

Put up at least 20% down and have payments that are no more than 30% of net income including taxes and insurance and you can get all the home loans you want.

That was the criteria when we brought our home and what it should return to.

15 posted on 03/03/2010 9:46:20 PM PST by dalereed
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To: Kaslin
It's not the CRA.

It all falls back to the old banker adage:

"Bad loans are written when times are good."

16 posted on 03/03/2010 11:12:39 PM PST by Brellium ("Thou shalt not shilly shally!" Aron Nimzowitsch)
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To: dalereed
“Put up at least 20% down and have payments that are no more than 30% of net income including taxes and insurance and you can get all the home loans you want.”

That might get you one loan, provided your credit was excellent and you were buying as your primary residence. In addition, you also must go through a new process with having the property appraise via HVCC, a nightmare concocted by Andrew Cuomo.

Bottom line, a system is now in place which makes obtaining home loans difficult for most borrowers. With this system, you can count on housing prices continuing to fall.

17 posted on 03/04/2010 4:46:33 AM PST by Rational Thought
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To: Rational Thought

The FHA is still making 3% down loans.


18 posted on 03/04/2010 5:20:35 AM PST by EVO X
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To: Rational Thought

“Bottom line, a system is now in place which makes obtaining home loans difficult for most borrowers”

Which it should be!!!!

FHA should be eliminated also and go back to like it was 40 years ago where the lending institution that made the loan had to carry it.

Government has no right to put people into homes!!!

If you can’t qualify to pay for it rent or go live under a bush!


19 posted on 03/04/2010 5:31:58 AM PST by dalereed
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To: dalereed

By taking this route, foreclosures will continue to soar, which effectively will tax all homeowners in this country through increased income taxes (in order to pay for all the money given to banks and their insurance companies like AIG) and lower values of properties.

While I agree with your statement, “Government has no right to put people into homes”, this same Government has now dictated to banks who they can or can’t lend to, making the housing problems worse than they would have been had Government just stayed out of the situation.

The housing market was the catalyst to the economic decline, and I don’t see the economy recovering without an improving housing market.

This administration has really dug us all a giant hole.


20 posted on 03/04/2010 6:30:55 AM PST by Rational Thought
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To: EVO X
It was 3% down up until recently.

I looked that up to find FHA is now requiring 3.5% down on a purchase, anticipated to be increased to 5% down shortly.

21 posted on 03/04/2010 6:37:37 AM PST by Rational Thought
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To: Taxman
Wayne Barrett of Village Voice is a New York liberal who has no use for Andrew Cuomo. With Cuomo likely running for governor his actions at HUD will come up again. If Village Voice seems like an unlikely messenger, PBS has been running a FRONTLINE documentary titled “The Warning.” This piece details how the Clinton Administration defeated attempts to regulate the emerging derivatives market.

http://www.pbs.org/wgbh/pages/frontline/warning/

22 posted on 03/04/2010 8:59:20 PM PST by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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To: Brad from Tennessee

I have visions of these people wearing orange jump suits and cleaning their San Quenton facility!


23 posted on 03/05/2010 5:00:29 AM PST by Taxman (So that the beautiful pressure does not diminish!)
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