I’m curious if you know if your CRA loans were conforming loans? And did your local bank write the loans or were you purchasing CRA qualifying paper from some outside broker? Conforming paper fared only slightly worse than it normally does. Non-conforming paper defaulted at a staggering rate.
I agree with Neidermeyer on this. I knew some of the original subprime brokers, they all began with Roland Arnall at Ameriquest before splitting off on their own. Ameriquest was the first and largest of the pure subprime lenders, the epicenter of the ensuing bubble.
None of their lending was covered by the CRA. They were shadow banks that didn’t take deposits so they were exempt. They may have sold paper to those of you who had CRA numbers to meet, but they could do anything that they wanted for themselves.
They were financed from Wall Street investment banks and hedge funds that wanted tons of high yield (and therefor high risk) paper to roll into CDOs, CDOs squared, Synthetic CDOs and all the rest of what Warren Buffet derisively called Financial Weapons of Mass Destruction. On this one Buffet was right.
The real money was in packaging high risk paper and derivatives based on it. They not only didn’t care about the quality of the loans, they actively wanted their contract brokers to push the limits and make any loan to anyone who would take one. Ergo strawberry picker Alberto Ramirez getting a $700,000 mortgage in Hollister on a $14,000 annual income.
Why? Maybe because it was possible to bet against the very loans that you had written by the use of credit default swaps.
If you knew that the loans you had written were bad, then you also knew that you could make guaranteed money on swaps when those mortgages defaulted. The sooner the mortgages defaulted the sooner you’d get paid. And you could buy as many swaps as you wanted to.
It’s not hard to see where this led to. It’s as if you could buy a hundred life insurance policies on your neighbor and were allowed to poison him as well.
The bank had to keep a certain percentage of loans on the books that were minority sub primes or face fines
So the easiest way was to buy blocks of them on the market to have on the ledgers
That’s not to say banks didn’t make bad loans on their own and ive already spoken on derivatives
The CRA over the years prompted the practice of forcing banks to loan to unworthy clients often with a racial component
Neidermayer said CRA had nothing to do with it....a red herring ...I disagree
Populism in conservatism loves to blame greedy bankers and there were some especially in derivatives etc
And some local banks and mortgage banks like Countrywide or American Century who would loan on over appraised homes with zero down
But what opened those doors wasn’t greed but politics and then it took a life of its in
Politics kept Fannie and Freddie from being reeled in
It was cumulative event that it my minds eye crashed downward after the derivatives collapsed after so many delinquent mortgages ruined those instruments which also resulted in a loosening of home inventories driving home prices down making folks in volatile housing markets upside down on low equity to begin with homes
And where did the notion so many folks who can’t afford homes anyhow begin?
Under Carter.
I just don’t cotton to all this big banks are bad rhetoric. I trust bankers far more than I do govt
We did not loan anyone a 700,000 dollar home on 14,000 income
Very few local banks hold their mortgages themselves
They get bundler in high volume with teenies clipped off or fees
Some banks just dealt with the punishment for having not enough CRA mandated loans
Most just bought them as I previously stated
We did not operate in a market conducive to minority lending but that didn’t matter
You could have a bank in the Utah desert 100 miles from any low income minorities and under the right auditors be fined
Hence that created the secondary markets and on it went and they were not by default high interest comparatively
That would be more common with a mortgage lender like I mentioned above who existed almost exclusively for sub primes