Skip to comments.CRA to Blame for Mortgage Mess? (How Government created the problem that they now must solve)
Posted on 09/19/2008 7:16:55 PM PDT by Eric Blair 2084
This morning on "Morning Joe," Larry Kudlow was asked about some specific reforms that could help the economy.
He noted that the federal government helped create this financial crisis in the mid-nineties by passing the Community Reinvestment Act. According to Wikipedia:
"The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. "
The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions.
... The Clinton Administration's regulatory revisions  with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns.  The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.   In short, the federal government began forcing banks to make subprime loans to people who couldn't afford them.
Update: This is from April 15:
KUDLOW: Would you consider, by the way, rolling back the Community Reinvestment Act, which a lot of people say triggered this, mandating banks and other lenders to make substandard loans in the first place, and the creator of the subprime mortgages back in the middle '90s? Is it time to take a look at the Community Reinvestment Act?
Sen. McCAIN: Absolutely, Larry. There were people who predicted that the Community Reinvestment Act might lead to reckless and unsound lending practices just to sort of fill a--you know, a amount of--I don't like to use the word "quota," but certain percentages of a--of a home--of the bank's lending practices. Yes, it has to be re-examined, it has to be judged by its effect, and we need to find out how this particular system affected the overall insolvency of the subprime lending issue. And I think it--I'm not saying it needs to be repealed, but it certainly needs to be re-examined and what its effects have been. And we'll be able to figure that out.
I don’t know much about this. Perhaps the Libertarian ping list can provide some information.
In 1995, as a result of interest from President Clinton’s administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators’ attention on institutions’ performance in helping to meet community credit needs. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
Racial inequities in mortgage acceptance rates (as reported by Inner City Press, the National Community Reinvestment Coalition, ACORN and other groups) are cited as a primary reason to maintain or even increase the scope of the CRA.
The thousands of mortgage defaults and foreclosures in the “subprime” housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call “communities of color” that they might not otherwise make based on purely economic criteria.
The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various “neighborhood organizations,” as they like to call themselves, such as “ACORN” (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.
So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.
A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the “Neighborhood Assistance Corporation of America.” He once boasted to the New York Times that he had “won” loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one “community group” operating in one city Boston.
Dont expect to read about this in the “mainstream media,” however, which generally views groups like ACORN as heroic champions of the poor, laws like the CRA as anti-discrimination laws, and places all of the blame for the subprime mortgage meltdown on greedy capitalists, especially mortgage brokers. Encouraged by such reporting, the odious Senator Charles Schumer of New York has promised federal legislation that will reign in these miscreants
September 6, 2007
Thomas J. DiLorenzo professor of economics at Loyola College in Maryland and the author of The Real Lincoln:
I own a bank and the Gubmint coerces me to loan money to this man through the Carter Era Community Reinvestment Act which was strengthened in 1995 under Bill Clinton.
Otherwise, they will look unfavorably on me when it comes time for them to approve a bank merger. I'll give him the money. Why do I care? I'll just sell the loan to a company who will package it into a CDO if it's not conforming and FNMA and FHLMC won't buy it and get it off my books.
I wonder if these revisions required an act of Congress or if Clinton was solely responsible.
Sort of. They are not without blame, don’t get me wrong. But there is more to it than that.
low- and moderate-income communities and minority borrowers have not historically enjoyed full access to credit. The Community Reinvestment Act (CRA) was enacted in 1977 to help overcome barriers to credit that these groups faced. Scholars have long leveled numerous critiques against CRA as unnecessary, ineffectual, costly, and lawless. Many have argued that CRA should be eliminated
During the mid 1970s, the notion that banks contributed to theeconomic decline of inner cities gained popularity among government officials andcommunity activists. Lenders allegedly redlined these neighborhoodsdrawing a redline, both literally and figuratively, around areas with perceived undesirablecharacteristics and systematically refusing credit to residents, regardless of individualcreditworthiness. Because these neighborhoods were predominantly low- and middle-income (LMI), as well as minority, activists and leaders condemned redlining as unlawfuldiscrimination.
To make it simple for my simple mind...
DON’T LEND MONEY TO PEOPLE WHO CAN’T AFFORD TO PAY IT BACK!
(no matter what color they are)
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 Saturday, March 29, 2008 10:33:45 AM 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.
Sowell wrote a good article a couple of weeks ago and broke it down:
Wikipedia even acknowledges that it played a role.
They made a hell of a lot of money from what amounted to hot air and now that the entire card house has collapsed the taxpayers are left holding the bag.
Pardon me for mixing metaphors and going populist, but I'm pissed!
Here's another thing to consider: We're now looking at $1 trillion dollar deficits in the coming years because of these bailouts, and that gives a potential President Obama and his rubber stamp Democratic congress carte blanche to raise taxes to the skies. If that doesn't sober us up nothing will.
Once upon a time H. Ross Perot heard a giant sucking sound. Now I hear a giant toilet bowl flushing on our economy and our whole gosh darned nation.
The bottom line is given the current alignment in congress, the problem is more likely to be exasperated than alleviated.
The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American citiesand, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.
The Act, which Jimmy Carter signed in 1977, grew out of the complaint that urban banks were “redlining” inner-city neighborhoods, refusing to lend to their residents
In addition, the Act’s backers claimed, CRA would be profitable for banks. They just needed a push from the law to learn how to identify profitable inner-city lending opportunities.
A September 1999 study by Freddie Mac, for instance, confirmed what previous Federal Reserve and Federal Deposit Insurance Corporation studies had found: that African-Americans have disproportionate levels of credit problems, which explains why they have a harder time qualifying for mortgage money. As Freddie Mac found, blacks with incomes of $65,000 to $75,000 a year have on average worse credit records than whites making under $25,000.
The Federal Reserve Bank of Dallas had it right when it saidin a paper pointedly entitled “Red Lining or Red Herring?””the CRA may not be needed in today’s financial environment to ensure all segments of our economy enjoy access to credit.” True, some householdsthose with a history of credit problems, for instance, or those buying homes in neighborhoods where re-selling them might be difficultmay not qualify for loans at all, and some may have to pay higher interest rates, in reflection of higher risk. But higher rates in such situations are balanced by lower house prices. This is not a conspiracy against the poor; it’s how markets measure risk and work to make credit available.
But for advocacy groups that were in the complaint business, the Clinton administration regulations offered a formal invitation. The National Community Reinvestment Coalitiona foundation-funded umbrella group for community activist groups that profit from the CRAissued a clarion call to its members in a leaflet entitled “The New CRA Regulations: How Community Groups Can Get Involved.” “Timely comments,” the NCRC observed with a certain understatement, “can have a strong influence on a bank’s CRA rating.”
The Senate Banking Committee has estimated that, as a result of CRA, $9.5 billion so far has gone to pay for services and salaries of the nonprofit groups involved. To deal with such groups and to produce CRA compliance data for regulators, banks routinely establish separate CRA departments. A CRA consultant industry has sprung up to assist them. New financial-services firms offer to help banks that think they have a CRA problem make quick “investments” in packaged portfolios of CRA loans to get into compliance.
The result of all this activity, argues the CEO of one midsize bank, is that “banks are promising to make loans they would have made anyway, with some extra aggressiveness on risky mortgages thrown in.” Many bankersand even some CRA advocatesshare his view. As one Fed economist puts it, the assertion that CRA was needed to force banks to see profitable lending opportunities is “like saying you need the rooster to tell the sun to come up. It was going to happen anyway.”
There is no more important player in the CRA-inspired mortgage industry than the Boston-based Neighborhood Assistance Corporation of America. Chief executive Bruce Marks has set out to become the Wal-Mart of home mortgages for lower-income households. Using churches and radio advertising to reach borrowers, he has made NACA a brand name nationwide, with offices in 21 states, and he plans to double that number within a year. With “delegated underwriting authority” from the banks, NACA itselfnot the banksdetermines whether a mortgage applicant is qualified, and it closes sales right in its own offices. It expects to close 5,000 mortgages next year, earning a $2,000 origination fee on each. Its annual budget exceeds $10 million.
Marks, a Scarsdale native, NYU MBA, and former Federal Reserve employee, unabashedly calls himself a “bank terrorist”his public relations spokesman laughingly refers to him as “the shark, the predator,” and the NACA newspaper is named the Avenger. They’re not kidding: bankers so fear the tactically brilliant Marks for his ability to disrupt annual meetings and even target bank executives’ homes that they often call him to make deals before they announce any plans that will put them in CRA’s crosshairs. A $3 billion loan commitment by Nationsbank, for instance, well in advance of its announced merger with Bank of America, “was a preventive strike,” says one NACA spokesman.
Marks is unhesitatingly candid about his intent to use NACA to promote an activist, left-wing political agenda. NACA loan applicants must attend a workshop that celebratesto the accompaniment of gospel musicthe protests that have helped the group win its bank lending agreements. If applicants do buy a home through NACA, they must pledge to assist the organization in five “actions” annuallyanything from making phone calls to full-scale “mobilizations” against target banks, “mau-mauing” them, as sixties’ radicals used to call it. “NACA believes in aggressive grassroots advocacy,” says its Homebuyer’s Workbook.
During the Reagan years, the Right used to talk of cutting off the flow of federal funds to left-liberal groups, a goal called “defunding the Left”; through the CRA, the Clinton administration has found a highly effective way of doing exactly the opposite, funneling millions to NACA or to outfits like ACORN, which advocates a nationalized health-care system, “people before profits at the utilities,” and a tax code based “solely on the ability to pay.”
MUCH, MUCH MORE HERE...
Bruce Marks, Chief Executive Officer of the Neighborhood Assistance Corporation of America
As a union activist for the Hotel Workers Union in Boston, Bruce Marks worked with the President of the Hotel Workers union, Domenic Bozzotto, to negotiate the first ever housing trust fund. This resulted in the first amendment to the Taft-Hartley Act in over twenty-five years and the first time a local union changed America's major labor law.
Marks moved from union activist to Executive Director of the Union Neighborhood Assistance Corporation (UNAC), where he used his finance and organizing experience to be the first to expose predatory lending and its devastating impact. Marks led the fight against the predatory lending practices of major New England banks. For two and a half years Marks and UNAC researched their predatory lending practices before releasing the research, which focused on Fleet Bank, to the public. The extensive research in Massachusetts, Georgia, Florida, North Carolina, Michigan and other states documented Fleet's predatory lending practices in which they targeted home owners who were property rich but cash poor. As Marks expanded the advocacy and housing services nationally, the Neighborhood Assistance Corporation of America (NACA) was established.
After a four and a half year war with Fleet, Marks was instrumental in negotiating an unprecedented settlement. Fleet committed to an $8 billion reinvestment program for low and moderate income people, settled lawsuits in Georgia for hundreds of millions of dollars, and provided $140 million in an unprecedented mortgage program to be administered by NACA.
Marks' role as an aggressive crusader for reform of the powerful banking and lending industry has its representatives up in arms. On May 5, 1999 from the Senate floor, Senator Phil Gramm (R-TX), head of the Senate Banking Committee, attempted to portray banks as victims of Bruce Marks. Gramm described Marks as, "... someone who graduates from college, goes to graduate school, and goes to work for the Federal Reserve in acquisitions and mergers, quits and goes into business, spends four years harassing banks and bank presidents, and finally the bank (Fleet Bank) caves and gives them $1.4 million, gives them $200,000 to set up their organization; they now have twenty offices, lending $3.5 billion..." Senator Gramm continued, "There is a CRA protester who calls himself an "urban terrorist" who used those charges against a bank, harassed them for four years, went to a speech of the president of the bank (Fleet Bank CEO Terrence Murray) at Harvard University, disrupted the speech, made this man's life miserable for four long years." Bruce Marks wears this personal attack as a badge of honor.
Under Marks' leadership, NACA has garnered commitments of over $6.7 Billion for the best mortgage product in America. NACA now has 31 offices throughout the country and will double in size within the next 12 to 18 months. NACA has become the largest housing services organization in the United States.
Today, Bruce Marks continues to expand NACA's role as lead reformer of the banking and lending industry. This includes enacting local and state legislation and regulations to address sub-prime and predatory lending. He continues to hold lenders and others who exploit working people accountable. And the fight goes on!!!
bookmark and thank you for explaining just what those penalties were for non-compliance to the quotas.
Doesn't matter whether or not you ever desired to “own property”, or could actually afford to own,and pay the perpetual maintenance,taxes and insurance on your property.
If you didn’t “own” some property, you were the supposed victim of some form of “discrimination”.
But no property is ever truly free and clearly owned, is it?
If my great-grandmother bequeathed to me one acre in Kentucky, that our family had “owned” for several hundred years, it doesn't really matter at all that she “owned” that property.
What matters, is whether or not I can afford to pay taxes on that property.
ping for later
ENTITLEMENT CULTURE GONE MAD
April 2, 2008
LAST week, a mob of screeching protesters invaded the Bear Stearns headquarters in Manhattan demanding more aid for homeowners. As you know, I oppose federal bailouts of every make and model - and that includes both the Bear Stearns deal and the bipartisan stimulus-palooza in Washington.
Here is the face of the entitlement culture gone mad: “We will go to their neighborhood, we will educate their children on what their parents do. They should be ashamed,” said Neighborhood Assistance Corporation of America (NACA) founder Bruce Marks in a nasty warning issued to employees of both banks.
This isn’t an idle threat. Bruce Marks is no harmless lone nut. He has a record of showing up at children’s schools and bullying them because of their parents’ employment. All in the name of “social justice,” of course, and securing loans for every last bad risk on the face of the planet. He’s so proud of his behavior, he calls himself a “bank terrorist.”
It’s all about the money for Marks’ group, which browbeats banks and lenders into billion-dollar deals to allow its activists to arrange mortgages for their high-risk constituents. NACA - with dozens of offices across the country - has a no-down-payment, no-closing-costs, low-interest-rate policy for low-income minority borrowers and takes a hefty fee for each transaction.
Marks had attended the Senate Banking Committee hearing with 400 angry residents from various states, many armed with tales of injustice wrought by Fleet. The protesters, who included gospel singers and Baptist ministers, sang and chanted as they paraded in wearing bright yellow T-shirts depicting a loan shark.
“It was like a gospel revival meeting,” Marks said. “I don’t know if ever there’s been a committee meeting where 400 people just took it over.”
the hearing was a step in a series of actions by Marks and other activists that ultimately led Fleet to agree to an $8 billion initiative for low and moderate-income borrowers.
“CRA says credit is the lifeblood of the community,” Marks continued. “Every individual and community has the right to credit it’s what allows communities to grow and prosper.”
Using the CRA effectively is not rocket science, Marks said, but it requires good organizing and a willingness to dig in for the long haul. The idea is to bombard lenders with the threat of negative publicity until they’re worn down.
“You’ve got to have a long attention span,” Marks said. “Because everybody’s got a breaking point.”
For Fleet, the last straw came when Marks and 15 colleagues infiltrated a speaking engagement by Fleet Chairman Terrance Murray in the fall of 1993. Murray was addressing a reception for leaders of the finance community, sponsored by the Harvard Business School at the Newton, Massachusetts, Marriot. Marks said that after he and several others stood up, confronted Murray, and “educated” the audience on Fleet’s misdeeds, Fleet finally agreed to negotiate.
Not only did Marks end up negotiating a lending agreement, but Fleet also made UNAC administrator of a $140-million loan program for low- and moderate-income homebuyers.
The Boston Globe quoted Senator Wilkerson as calling Marks “the kind of person who would throw a Molotov cocktail and then run in with a fire extinguisher and declare himself the hero for putting out the fire.”
“Let them tell all the people who’ve purchased homes [because of UNAC’s program] that they didn’t deserve homes we’d love to have that public debate,” Marks said, adding that his critics are more interested in their egos than winning real benefits for the community.
Marks added that once banks are forced to offer low- and moderate-income people fair access to credit, they come forward and concede that investing in communities is a good idea, and good for business. UNAC’s role, according to Marks, is to get banks’ attention in order to show that there is a constructive alternative to exploiting and excluding people. “But the way you get their attention,” he said, “is to be in their face all the time.
The mortgage market is a very small part of this total mess, but it is what they are hiding the big turkey behind.
Housing Activist Bruce Marks Named the Boston Globe Magazine’s Bostonian of the Year for 2007
In a special edition appearing Sunday December 30, The Boston Globe Magazine selects housing activist Bruce Marks as its 2007 Bostonian of the Year. In choosing Mr. Marks, the Globe Magazine cites “his relentless advocacy and sensible innovation in working to find a way out of the mortgage crisis that affects so many.”
Hundreds of politicians and former politicians need to be in jail and/or thrown out of office in disgrace. Mortgage and banking thieves all the way down the ladder need to go to jail as well. When will the American people demand accountability for this national disgrace? They’ve stolen our children’s futures and Osama Obama wants to accelerate that process. God help us all!
How is Bruce Marks organization doing today?
A couple of days ago, Rush played an audio of an interview with
Robert B. Reiche (of the Clinton Admin.)
IIRC, it was a pretty recent interview.
And it just blew me away as Reiche said that Bill Clinton had really
gotten the housing mortgage debacle rolling...by threatening private
lenders if they didn’t start approving plenty of home loans in minority area.
I almost had a heart attack. As NOTHING is every the fault of Democrats.
And if you don’t believe that...just ask a Democrat.
Consider this press release from Citigroup in September of 2004, which finds ACORN and Citi happily holding hands and pushing the goals of both organizations to promote homeownership in low- and moderate-income neighborhoods, especially in immigrant communities.
From the press statement:
With this agreement, ACORN will be able to expand our mission of strengthening communities by helping low- and moderate-income families, including new immigrants to this country, become homeowners, said Maude Hurd, National President of ACORN.
Its not as if Citi and ACORN were the only ones jumping deep into subprime lending together, either. Economic policy research at the time centered on how lenders were denying loans to those with poor credit, often minorities; consider the following conclusion from a September 1999 study:
The Urban Institute report issued today says that not all Americans enjoy equal access to the benefits of homeownership, in part because of unequal access to capital.
Fair lending essentially became synonymous with a universal lowering of credit standards and as lenders loosened credit standards, community groups cheered, and the White House lauded the commitment to expanding homeownership.
Legislatively, President Bush went so far as to propose eliminating down payment requirements altogether. In a September 2004 press statement, administration officials touted a so-called Zero-Downpayment Initiative that would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.
Even when we had clear data suggesting that lending to people who couldnt afford their loans would likely end up badly, we ignored it. Consider this story from April 2004, which noted a Fannie Mae study that found that 49 percent of English-language Hispanics, 46 percent of Spanish-language Hispanics, and 42 percent of African Americans cited credit concerns as the primary reason they had not yet bought a home.
That sense of entitlement has given traction to guys like Bruce Marks at the Neighborhood Assistance Corporation of America, whose boorish tactics would be universally condemned at any other point in our nations history. Instead, the use of those tactics get him named Bostonian of the Year by the Boston Globe, and find him putting banks in a veritable vise grip perhaps even rightfully so over their lending tactics.
EVERYONE: Freep the Gretawire.com poll asking whether Todd Palin should honor the Witch-hunt subpoena issued against him! (HINT: “NO”) - Just takes ten seconds and a mouse click.
EVERYONE: Freep the Gretawire.com poll asking whether Todd Palin should honor the Witch-hunt subpoena issued against him! (HINT: “NO”) - Just takes ten seconds and a mouse click.
Nonprofit Groups Press
For Subprime Relief;
Deciding Who Gets Help
Paulo Perez, a graphic artist, hasn’t made payments in months on the $330,000 mortgage on his ranch house in La Puente, Calif. It fell to Citigroup Inc.’s mortgage-servicing unit to decide what to do about that.
After Citigroup moved to foreclose on him, Mr. Perez, who is 28 years old, asked the financial giant to cut his monthly payments to a level he can afford. Citigroup representatives eventually said no, offering him a less appealing suggestion: Sell your house, turn over the proceeds, and we won’t go after you for any unpaid balance.
Acorn and other nonprofit community groups contend that mortgage servicers have no right to play hardball with borrowers. Subprime lenders, these groups say, talked customers into loans they couldn’t afford by encouraging them to overstate their incomes and by basing the loans on inflated appraisals. Anyone with steady enough income to make regular monthly payments should get a restructured mortgage, the groups argue.
On the other hand, Douglas Duncan, chief economist for the Mortgage Bankers Association, argues that lenders aren’t the only ones to blame for the subprime-lending debacle. Among the many culpable parties, he says, are the borrowers who didn’t follow through on their obligations.
Bruce Marks, executive director of the Neighborhood Assistance Corp. of America, or NACA, another national nonprofit group, characterizes Ameriquest and Argent as “the worst of the worst” subprime lenders. “They incentivized brokers and lenders to throw money at people knowing they couldn’t afford these loans....These homeowners were never qualified correctly and they deserve modification.” (In an unrelated case in 2002, Household International Inc., which has since been acquired by HSBC Holdings PLC, agreed to a $484 million settlement over alleged lending abuses.) A spokesman for ACC declined to comment.
For years, groups such as Acorn and NACA have pressed Citigroup and other lenders to step up mortgage lending to lower-income customers. When subprime mortgages began going bad, these groups began pushing banks not to lower the boom on borrowers. They have leverage. The Community Reinvestment Act requires banks to help meet the credit needs of communities in which they operate, and regulators often seek feedback from the groups when deciding whether to permit financial institutions to open new branches. The groups sometimes organize boycotts.
In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn’t set to rise until next June, but she already is behind on payments.
Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.
Mrs. Brandon figures if she sold her home today, she wouldn’t get more than $450,000 — what a nearby home sold for in foreclosure.
You da man! You are right on top of this. Keep me posted and ping me please to other articles. Keyword is CRA.
Mark Levin led off his show talking about this today. So the word is getting out.
The truth shall set you free.
"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself. The essence of political freedom is the absence of coercion of one man by his fellow men. The fundamental danger to political freedom is the concentration of power. The existence of a large measure of power in the hands of a relatively few individuals enables them to use it to coerce their fellow men. Preservation of freedom requires either the elimination of power where that is possible, or its dispersal where it cannot be eliminated. It essentially requires a system of checks and balances, like that explicitly incorporated in our Constitution..."
-- Milton Friedman, The New Liberal's Creed: Individual Freedom, Preserving Dissent Are Ultimate Goals," May 18, 1961
"There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what youre doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then Im not so careful about the content of the present, but Im very careful about the cost. Then, I can spend somebody elses money on myself. And if I spend somebody elses money on myself, then Im sure going to have a good lunch! Finally, I can spend somebody elses money on somebody else. And if I spend somebody elses money on somebody else, Im not concerned about how much it is, and Im not concerned about what I get. And thats government. And thats close to 40% of our national income."
See here. Community Reinvestment Act
No lender was compelled to make a bad loan under CRA, borrowers were qualified for their loans using standard procedures with regard to credit worthiness and DTI. Furthermore lenders did not make CRA loans available to outside mortgage brokers or wholesalers where much of the preditory and abusive practices took place.
The simple fact is that Donald Trump could qualify for a CRA loan provided the property he was puchasing was located in an underserved location. To blame CRA lending for the credit/mortgage crisis we're facing is simplistic and misleading.
Interesting article. Once again, I see no where on this thread is this even mentioned. In his own words, this is about accountability and IMO, HE must be held accountable & responsible for his role in this mess, pandering to illegals, NOT ignored:
For Immediate Release
Office of the Press Secretary
June 17, 2002
President Calls for Expanding Opportunities to Home Ownership
Remarks by the President on Homeownership
St. Paul AME Church
Play Video Video (Real)
Play Real Audio Audio
Fact sheet Policy in Focus: Home-Ownership
11:10 A.M. EDT
THE PRESIDENT: Thank you all very much for that wonderful Atlanta welcome. It’s nice to be back in this incredibly important community.
You know, our nation faces a lot of huge challenges. Right now, we’ve got 60,000 troops fighting terrorism so that we can be free, all of us can be free. I appreciate so very much the resolve and unity and determination of this great land. I appreciate our military for their sacrifices. We’re also doing everything we can to secure the homeland, to make sure that those who hate us won’t take innocent life again.
President George W. Bush and new home owner Al Smith tour Pryor Road Corridor Development in Atlanta, Georgia, Monday, June 17. White House photo by Eric Draper. And as we work for a more secure world, we’ve got to work for a better world, too. (Applause.) And that means as we work on our security from possible attacks by terrorists, we also work on economic security. The two securities go hand in hand. Anybody who wants a job who can’t find one means we’ve got a problem. In Washington, they talk statistics all the time, and that’s important — people who count numbers need to make a living, too. (Laughter and applause.)
But my attitude is, if somebody can’t find work and they want to work, we’ve got to continue to work on expanding the job base. And part of economic security is owning your own home. (Applause.) Part of being a secure America is to encourage homeownership. So somebody can say, this is my home, welcome to my home.
Now, we’ve got a problem here in America that we have to address. Too many American families, too many minorities do not own a home. There is a home ownership gap in America. The difference between Anglo America and African American and Hispanic home ownership is too big. (Applause.) And we’ve got to focus the attention on this nation to address this.
And it starts with setting a goal. And so by the year 2010, we must increase minority home owners by at least 5.5 million. In order to close the homeownership gap, we’ve got to set a big goal for America, and focus our attention and resources on that goal. (Applause.)
And I picked a good man to help realize that goal, in Mel Martinez. I don’t know if you know Mel’s story, but — (applause) — it’s an interesting story. Mel was born in Cuba. (Applause.) Yes. Mel brought his cousins with him. (Laughter.) All two of them, anyway. (Laughter and applause.)
But Mel’s mother and daddy — Mel’s mother and dad put him on an airplane to come to America when he was a young boy, because they didn’t want his son growing up in a country that wasn’t free. Think about that, think about the courage of a mom or a dad, and their love for freedom — love freedom so much, they had put their child in the hands of loving Americans, and mom and dad eventually came. And here he now sits, as a member of the President’s Cabinet. What a great country we have. (Applause.)
My point is, Mel understands what it means to dream, and then to work to realize the dreams. I’ve also picked a fine friend of mine from Texas, named Alphonso Jackson, to serve as the Deputy of HUD. And where are you, Alphonso? There he is; I appreciate you. (Applause.) These are can-do people. So when we set a goal, they understand their job is to work toward that goal.
I also want to thank the Mayor of Atlanta, Georgia, Shirley Franklin, thank you for coming Madam Mayor. (Applause.) Much of the success of this program is going to depend — depends upon the ability for the federal government to work with state and local governments. And I know the Mayor has got a strong commitment to housing for all people, and to end the ownership gap. Madam Mayor, thanks for coming.
I appreciate as well Johnny Isakson and John Linder, members of the Georgia congressional delegation for coming today. Thank you all for being here. (Applause.) I want to thank Franklin Raines, of Fannie Mae and Leland Brendsel of Freddie Mac. Thank you all for coming. (Applause.)
Today I had the pleasure of seeing an entrepreneur’s work first-hand. An Atlanta citizen who also dreamt a dream, and that is to develop a piece of blighted property, so others could benefit from her vision and hard work. Masharn Wilson is here. (Applause.) She is a President and CEO — Masharn is the President and CEO of her own company. Part of the economic security is not only owning a home, part of it is if you have the entrepreneurial instincts is to own your own business, as well. (Applause.) So I want to appreciate you, Masharn. I appreciate your hard work.
And one other person I want to announce is a fellow named Darryl Hicks. Where are you, Darryl?
MR. HICKS: Right here.
THE PRESIDENT: There you are. Darryl Hicks is here. I want to — Darryl is — one of the things I remind our fellow citizens, if you’re interested in defeating evil, do some good. You see, we’re going to fight with our military, but we can also fight with our hearts. And a country which has been under attack can respond by loving your neighbor like you’d like to be loved yourself.
And this man right here is a fellow — Darryl Hicks — who works for Habitat for Humanity programs. He’s interested in lending his heart and his talents to helping a neighbor in need. America can be changed one heart, one soul, one conscience at a time, so long as we are willing to love a neighbor like we’d like to be loved ourselves. (Applause.)
I want to thank you, Darryl. I want to thank Darryl for being a soldier in the army of compassion. And I also want to thank Reverend Dr. Thomas Bess for opening up this beautiful church. You know, one of my passions is the faith-based initiative. It is important that Congress not fear faith-based programs, but welcome faith-based programs, so we can help change people’s lives. (Applause.)
I find it most interesting that we would be talking about how we help people in a church. After all, that’s why churches exist.
THE PRESIDENT: And so I am — I want to thank the church staff for opening up this beautiful facility to the army which follows me around. (Laughter.)
I do believe in the American Dream. I believe there is such a thing as the American Dream. And I believe those of us who have been given positions of responsibility must do everything we can to spotlight the dream and to make sure the dream shines in all neighborhoods, all throughout our country. Owning a home is a part of that dream, it just is. Right here in America if you own your own home, you’re realizing the American Dream.
You know, today I went to the — to some of the home — met some of the homeowners in this newly built homes and all you’ve got to do is shake their hand and listen to their stories and watch the pride that they exhibit when they show you the kitchen and the stairs — so people like Ken Beatty, who is an environmentalist; or Al Smith, a probation officer; or Geary Jefferson a data base administrator; or Darrin West, an Atlanta police officer, Tamika Henry — Tomika Henry Cole.
These are all people that I’ve met; they’ve come over here today. They showed me their home. They didn’t show me somebody else’s home, they showed me their home. And they are so proud to own their home and I want to thank them for their hospitality, because it helps the American people really understand what it means.
And what we’ve got to do is to figure out how to make sure these stories are repeated over and over and over again in America. Three-quarters of white America owns their homes. Less than 50 percent of African Americans are part of the homeownership in America. And less than 50 percent of the Hispanics who live here in this country own their home. And that has got to change for the good of the country. It just does. (Applause.)
And so here are some of the ways to address the issue. First, the single greatest barrier to first time homeownership is a high downpayment. It is really hard for many, many, low income families to make the high downpayment. And so that’s why I propose and urge Congress to fully fund the American Dream Downpayment Fund. This will use money, taxpayers’ money to help a qualified, low income buyer make a downpayment. And that’s important.
One of the barriers to homeownership is the inability to make a downpayment. And if one of the goals is to increase homeownership, it makes sense to help people pay that downpayment. We believe that the amount of money in our budget, fully approved by Congress, will help 40,000 families every year realize the dream of owning a home. (Applause.) Part of the success of Park Place is that the city of Atlanta already does this. And we want to make the plan more robust. We want to make it more full all across America.
Secondly, there is a lack of affordable housing in certain neighborhoods. Too many neighborhoods, especially in inner city America, lack affordable housing units. How can you promote homeownership if people can’t afford a home?
And so what I’ve done is propose what we call a Single Family Affordable Housing Tax Credit, to encourage the development of affordable housing in neighborhoods where housing is scarce. (Applause.) Over five years, the initiative amounts to $2.4 billion in tax credits. And that will help. It will help a lot to build homes where people can — where when fully implemented, people will be able to say, I own my home.
A third major barrier is the complexity and difficulty of the home buying process. There’s a lot of fine print on these forms. And it bothers people, it makes them nervous. And so therefore, what Mel has agreed to do, and Alphonso Jackson has agreed to do is to streamline the process, make the rules simpler, so everybody understands what they are — makes the closing much less complicated.
We certainly don’t want there to be a fine print preventing people from owning their home. We can change the print, and we’ve got to. We’ve got to be wise about how we deal with the closing documents and all the regulations, but also wise about how we help people understand what it means to own their home and the obligations and the opportunities.
And so, therefore, education is a critical component of increasing ownership throughout America. Financial education, housing counseling, how to help people understand that there are unscrupulous lenders. And so one of the things we’re going to do is we’re going to promote education, the education of owning a home, the education of buying a home throughout our society. And we want to fully implement the Section 8 housing program, homeownership program. The program will provide vouchers that first-time home buyers can use to help pay their mortgage or apply to their downpayment.
Many of the partners today, many of the people here today, many of the business leaders here today are creating a market for the mortgages where Section 8 vouchers are a source of the payment. And that’s good — see, it’s an underpinning of capital. It helps move capital to where we want capital to go.
And so these are important initiatives that we can do at the federal government. And the federal government, obviously, has to play an important role, and we will. We will. I mean, when I lay out a goal, I mean it. But we also have got to bring others into the process, most particularly the real estate industry. After all, the real estate industry benefits when people are encouraged to buy homes. It’s in their self interest that we encourage people to buy homes. (Applause.)
And so one of the things that I’m going to talk about a little bit today is how to create a sustained commitment by the private sector that will have a powerful impact. First of all, we want to make sure that we help work to expand capital available to buyers, and as I mentioned, overcome the barriers that I’ve delineated, as well as provide the education component. In other words, this is not just a federal responsibility.
That’s why I’ve challenged the industry leaders all across the country to get after it for this goal, to stay focused, to make sure that we achieve a more secure America, by achieving the goal of 5.5 million new minority home owners. I call it America’s home ownership challenge.
And let me talk about some of the progress which we have made to date, as an example for others to follow. First of all, government sponsored corporations that help create our mortgage system — I introduced two of the leaders here today — they call those people Fannie May and Freddie Mac, as well as the federal home loan banks, will increase their commitment to minority markets by more than $440 billion. (Applause.) I want to thank Leland and Franklin for that commitment. It’s a commitment that conforms to their charters, as well, and also conforms to their hearts.
This means they will purchase more loans made by banks after Americans, Hispanics and other minorities, which will encourage homeownership. Freddie Mac will launch 25 initiatives to eliminate homeownership barriers. Under one of these, consumers with poor credit will be able to get a mortgage with an interest rate that automatically goes down after a period of consistent payments. (Applause.)
Fannie Mae will establish 100 partnerships with faith-based organizations that will provide home buyer education and help increase homeownership for their congregations. I love the partnership. (Applause.)
The Enterprise Foundation and the local initiative support corporation will increase efforts to build and rehabilitate more homes in inner cities at affordable prices by working with local community development corporations.
In my home state of Texas, Enterprise helped turn the once decaying ideal neighborhood of Dallas into a vibrant community, by building homes that were sold to residents at affordable prices. The National Association of Home Builders will team up with local officials, home builder associations and community groups in 20 of our nation’s largest housing markets, to focus on how to eliminate barriers, and encourage homeownership.
The Neighborhood Reinvestment Corporation will dramatically expand financial and home buyer education efforts to 380,000 minority families. The Neighborhood Housing Services of America will raise $750 million to promote homeownership initiatives in many communities. We’re beginning to use the Internet better, so that realtors all across the country will be able to call up programs all designed to help minority home buyers understand what’s available, what’s possible, and what to avoid. The National Realtors Association will create a central data bank of affordable housing programs, which will be made available to agents, real estate agents, to help people.
So these are some of the beginnings of a national effort. And I want to thank all those who are responsible for the organizations I just named for lending your talents to this important effort for America. You know, one of the things Presidents can do, is they can call the old conference. So I’m going to call one — (laughter) — just to make sure people understand, not only are we serious, but to let them check in. If they’ve signed up and said they’re going to help, this will give everybody a chance to say, here’s what I’ve done to help. It’s what we call accountability. (Applause.)
And so this fall, we’re going to have a White House conference. It is a White House conference specifically designed to address the homeownership gap. It is a White House conference that will not only say, what have you done to date, have you got any new ideas that we can share with others as well. I’m serious about this. This is a very important initiative for all of America. See, it is a chance for us to empower people. We’re not going to talk about empowering government, we’re talking about empowering people, so they have got choices over their lives. (Applause.)
I want to go back to where I started. I believe out of the evil done to America will come incredible good. I believe that as sure as I’m standing here. I believe we can achieve peace. I believe that we can address hopelessness and despair where hopelessness and despair exist. And listen, I understand that in this great country, there are too many people who say, this American Dream, what does that mean; my eyes are shut to the American Dream, I don’t see the dream. And we’d better make sure, for the good of the country, that the dream is vibrant and alive.
It starts with having great education systems for every single child. (Applause.) It means that we unleash the faith-based programs to help change people’s hearts, which will help change their lives. (Applause.) It means we use the mighty muscle of the federal government in combination with state and local governments to encourage owning your own home. That’s what that means. And it means — it means that each of us, each of us, have a responsibility in the great country to put something greater than ourselves — to promote something greater than ourselves.
And to me, that something greater than yourself is to love a neighbor like you’d like to be loved yourself. In order to change America and to make sure the great American Dream shines in every community, every community, we must unleash the compassion and kindness of the greatest nation on the face of the earth.
I’m honored to be here today. I want to thank you for your interest. God bless you all, and God bless America. (Applause.)
It depends on your definition of "compelled". You are correct that no bank had a gun pointed at their heads and forced to loan money to busboys making minimum wage to buy a 300K condo. They were free to disobey the edict. Of course, with the wave of bank mergers that required Gubmint approval...
It's very subtle. The left has plausible deniability. Nobody forced anyone to do anything, but it's the equivalent of waking up with a bloody horse head next to you in bed if you don't.
Affirmative Action home loans- the cause of this mess that we are observing in the financial markets this week.
So we have blamed Clinton and are heading towards blaming Johnson.
What did we do in the last 8 years to stop any of this from happening?
As a result by 1995 80% of sub-prime loans were being made by essentially unregulated independent mortgage companies or affiliates of banks or thrifts, which were subject - depending on their method of organization - to either minimal federal supervision (including CRT requirements)or to none at all.
As for underwriting standards, I've not seem more recent figures, but at least as late as 1995 there was little if evidence that loans made to archive CRT requirements were especially prone to non-performance, and I suspect that when this all shakes out the smaller, local institutions subject to CRT scrutiny will have been shown to have better evaluated borrowers than larger unrelated institutions such as Countrywide.
In an unregulated environment of ultimately securitized lending no-one was subject to long-term market discipline short of the melt-down we are now encountering. This was a quire straight-forward case of market failure, completely predictable, and likely to repeated in the future as it has been in the past once the current lessons are unlearned by financial engineers two generations hence.
Post #12 - “This is interesting, but it doesn’t explain $60 trillion in credit default swaps. That’s more than the entire world’s GDP! That doesn’t even include the value of the mortgage backed securities and other asset based derivatives ginned up by Wall Street. [DING DING DING DING!!!!! WE HAVE A WINNER!]
They made a hell of a lot of money from what amounted to hot air and now that the entire card house has collapsed the taxpayers are left holding the bag.” PRECISELY.
I apologize, I haven’t read the rest of the thread YET - and there’s a lot to say (and read) have a shoot to get to, but this is spot on!
I’ll post more later.
“I [heart] red-lining”
“So we have blamed Clinton and are heading towards blaming Johnson.
What did we do in the last 8 years to stop any of this from happening?”
Nothing. We made it worse by deregulating more.
Post #39 - Very well stated. Spot on.
The reason why most lay people are understandably confused is because this is really complicated and involves 30 years of public policy. It’s a long story.
All I am saying is that it is too simplistic to simply use the MSM populist argument that “Greedy lenders caused this.”
It should be clear that you can create all kinds of red tape to hide what you see in front of your own 2 eyes for the past 6 years(personally) but you can only fool everyone for so long. Yeah technically the wording for CRA’s make it so that they aren’t directly looked at but it’s the repercussions of legislation like this that lead to secondary results. Quit hiding behind red tape. That’s exactly the problem with the Democratic party. They lead you on a chase that takes forever for the common man to figure out.
NOW, look at ACORN. Yes, ACORN. I personally was trying to get a loan after years of struggling as a freelancer trying to prove my income,which I did, and was looking into ACORN before I knew what was going on. My loan agent told me that I couldn’t get an ACORN loan. He said “if you weren’t white and made a little less money then I could get you a loan like that”. So don’t hide behind this crap. The CRA set the standard and the rest followed by competing with these banks who were Mandated to give a certain amount of loans to the undeserving. As I have understood also, banks were given a CRA credit score?
Either way....this type of legislation IS WRONG!
Even if you try and hide behind this not being responsible for the crisis we are in. I know better though. My brand new neighborhood had many foreclosures a year later and Section 8 housing following right beside it.
Thanks a lot. Spent the last 7 years of my life working double time to get out of a bad neighborhood to end up right back in one. I’m not the only one either. I’ve talked to many parents across Arlington and Ft. Worth and it is the same there.
This falsehood that ‘we would have seen the results in Vegas’? What is this? a Jedi mind trick. Look around. It’s everywhere.
The bad news??
"REPUBLICAN" President George W. Bush committed $440 BILLION to the CRA back in 2002, setting up NOT ONLY the titanic financial disaster we're now facing between Bush's $700 billion TARP boondoggle and 0bama's $787 billion 'Stimulus Package', but the leftist Presidency of one B. Hussein 0bama-Soetoro.
CRA doesn’t stand for”Community Reinvestment Act”,it stands for”Community Redistribution Act”!