I don't care if you're the bank president. If you're knowingly making what you describe as bad loans and knowingly reselling them to investors without their knowledge then you are committing fraud. FRAUD. That isn't conjecture, that is the law.
Those laws are the problem. And yes, when the law changes the credit worthiness of a borrower based upon outside demographic and geographic criteria, that is forcing us to make bad loans.
What laws? There are no laws that do that. You can't name the statute(s) that 'forces' your big five client to make bad loans,(much less hide them in a bundle of good loans for resale), and you know it.
You need to post an alternate description of the events if you wish to be taken seriously.
No, I stand by my remarks and so does the Office of Thrift Supervision . If anyone needs to provide an 'alternate description' of events here it is you.
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”
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.
Consequently, banks in every community in America have been forced to create a portfolio of bad loans, euphemistically referred to as “subprime” loans. In order to compensate themselves for the added risk of extending these loans, most lenders have increased the lending fees associated with loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.
But since they cannot charge too high of rates for these loans, and since many “community groups” would go ballistic, they just pass on this burden to the credit worthy and destroy both markets at the same time, trying to remain solvent.
Thus, if one browses the ACORN web site, one can read of their boasts of having “predatory lending laws” passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to “subprime” borrowers.
These ARE price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above.
Lastly, there are two further issues involved. The investors who supply the actual cash had to be tricked. Lied to. And since you cannot do this directly, like you have said without it being fraud, you simply keep increasing the appraised value of the Real Estate. Banks pay for the appraisals. They are the ones who come back and tell you your house is worth “X”. And so to get more capital up front, they just began to slowing add a FEW dollars into those appraisals. Not by fraud, but by the genuine fact that an appraisal is a guess. They just took the highest guess because it covered them better and they knew the good people would NOT, on average default.
So, good people, got value for their homes and lands, and were happy. They paid on time and the investors were happy. The banks loaned a little more risk, but these were all good time and good money. And most of these banks who began this process, were the smaller local banks or brand new upstart “Brokers” who just jumped in.
Brokers are many times, just a former bank officer who understood the GAME and figured out he could make REAL money doing the loans himself, since, like the banks he could resell them for a fast buck and not NEED any up front capital.
This is where 45 day, and 90 day First Payment plans originated. Brokers who needed more time to sell the loans before they actually exchanged paper for paper in terms of easy cash for credit. In the peak heyday of this scheme, the banks, who are needed to service these loans, saw they too could make money charging the brokers. So the system itself created this cycle of debt for more debt and INFLATED the value of the Real Estate.
I could go on and on.
How much MORE do you want to know?