Free Republic

There is one overwhelming fact about the world economy that cannot be wished away. Excess capacity in industry is hovering at levels not seen since the Great Depression. Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then...

Dauphine Island The Community Reinvestment Act (CRA) passed in 1977 occupies a lot of space in my book, Citizen Wealth, because it is both arguably the single largest legislative victory achieved by community organizations over the last generation and because it has helped millions purchase homes, one of the most dramatic creators of citizen wealth for lower income and working families, especially in minority communities. The Obama Administration has proposed a super-cop, the Consumer Financial Protection Agency (CFPA), to ensure that CRA and other consumer protections are fully followed and enforced across the gamut of financial institutions. Yippee, yi-ky-yay! Thank...

Stimulus: The group that pushed banks into the risky loans that brought the economy down is now eligible for a huge chunk of stimulus cash. The stimulus plan does create jobs — for community activists.As in any agreement, contract or piece of legislation, the devil is in the details. So it is with the stimulus package percolating in Congress. Analysts are beginning to figure out that only a small percentage of the money will actually trickle down into the economy in the first two years, not enough to do much stimulating. Yet in this package is a $4 billion pot...

In order that Freepers have direct access to it, I am re-posting this link to yesterday's report "The Role of Government Affordable Housing Policy in Creating the Global Financial Crisis of 2008" from the U.S. House of Representatives Committee on Oversight and Government Reform. The link has been noted in at least two other threads today, however I believe that because it's (a) timely, (b) important, and (c) comprehensive, that it warrants its own thread. And this version will get you straight to the report without having to wade through the snark of those other threads. By the way, this...

I first heard about the Community Reinvestment Act sometime in late 2008. When I first heard commentators come on major networks like Fox News and assign it as the most significant blame for the mortgage crisis I was stunned. I have spent the last nearly seven years in the mortgage business. If the CRA was such a factor, why hadn't I heard of it before? As I learned more about it, I started to understand why it became such a popular cause celebre.

In a stunning report (pdf) released yesterday by the House Committee on Oversight and Government Reform, the current financial crisis was traced back to government intervention in the U.S. housing market.  Yes, you read that right.   The report issued by the Republican minority didn’t disclose the names of the culprit individuals, but it sure pointed a lot of fingers at organizations, politicians, lobbyists and Fannie Mae/Freddie Mac. According to the report, government intervention “created ‘affordable’ but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage.  Finally, government intervention created a nexus of vested interests...

Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday. The claims in the report have long been advanced by conservatives, who argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008. But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- “privatized...

The Republicans have again chosen their favorite boogey men for blame in the mortgage crisis, Fannie Mae, Freddie Mac and the Community Reinvestment Act. The Republicans House Committee on Oversight and Government Reform lead by Congressman Darrell Issa has released this white paper today on all three entity's roles in the mortgage crisis. In my opinion, the Republicans have once again inflated the role of all three in the crisis.

ACORN, which played a starring role in creating the subprime mortgage crisis, plans to add insult to injury by harassing lenders across the nation with protests tomorrow in an effort to coerce them into supporting President Obama's Making Home Affordable foreclosure-avoidance program. Austin King, director of ACORN Financial Justice, sent out a press release today advising of the demonstrations that are planned as part of its "Homewrecker 4" campaign. The four financial companies targeted are Goldman Sachs, HomEq Servicing, American Home Mortgage, and OneWest. Read the whole document here. ACORN plans to hit Dallas, Pittsburgh, Philadelphia, St. Louis, New York...

Earlier this week I noted that I had changed my mind on the Community Reinvestment Act. Contrary to my initial conclusion, the evidence is overwhelming that the CRA played a significant role in creating lax lending standards that fueled the housing bubble. Once I realized this, I had to abandon my suspicion that the anti-CRA case was a figment of the rhetoric of Republicans attempting to distract attention from their own role in the mortgage mess. So I laid out the facts and arguments that had convinced me to switch sides in the CRA debate. It was a long series...

A mortal blow to the time-gap argument Earlier this afternoon, I explained at length why the long delay between the 1977 passage of the CRA and the mortgage boom didn't absolve the law from playing a role in loosening mortgage standards. After that post, I came across a 2004 newsletter from the San Francisco Federal Reserve that explains why the CRA became much more dangerous "effective" in the 1990s. From the newsletter: While the results in these studies are consistent in some respects with a role for the CRA in narrowing any gap between LMI and other home purchase lending,...

If you still doubt the role of the Community Reinvestment Act in encouraging lax lending practices, you should check out this 1996 pamphlet published by the Comptroller of the Currency. It discusses "some activities undertaken by small national banks that demonstrate exemplary performance under the Community Reinvestment Act." Those activities now look a lot like the creation of toxic loans. And what are those activities? Hawley National Bank is praised for offering residential loans with flexible terms, including three-year and five-year balloons and adjustable-rate mortgages. It also offers down-payment assistance. First National Bank of the Berkshires' loan portfolio, which consisted...

How many uninsured Americans are there really? It’s a number that the mainstream media have repeatedly misrepresented to make the health care “crisis” seem worse than it is.

The Obama administration’s latest financial regulatory reform proposal contains a stunning surprise hidden on page 67: “Rigorous application of the Community Reinvestment Act should be a core function of the CFPA.” The Community Reinvestment Act, or CRA, should be a core function of the CFPA or the Consumer Financial Protection Agency. Along with Fannie Mae and Freddie Mac at the very epicenter of the financial meltdown last year, the CRA is one of the vehicles used to inveigle, incent or threaten banks into lowering their lending standards to provide home loans to those who simply cannot afford them. According to...

From page 70 (PDF page)...4. Access. The Agency should enforce fair lending laws and the Community Reinvestment Act and otherwise seek to ensure that underserved consumers and communities have access to prudent financial services, lending, and investment. A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access. This focus will also help ensure that the CFPA fully internalizes the value of preserving access to financial services and weighs that value against other values when it considers new consumer protection regulations. Rigorous application of the...

A high-profile Chicago-based advocate for low-income communities has agreed to pay the federal government $550,000 to settle claims that it misused federal grant money. The National Training and Information Center was accused by the U.S. attorney’s office in a 2006 federal lawsuit of violating the federal False Claims Act when it used some of the millions it received from a division of the U.S. Department of Justice to lobby members of Congress with hopes of securing more grants. Federal law prohibits the use of federal funds to curry favor with congressmen or congressional employees in connection with a grant. NTIC,...

When real life creeped in on the liberal land of unicorns and the folks that couldn't afford the subprime loans proved to be unable the afford the subprime loans, the government, as promised, went on the hook, and the economy tanked. And here we sit. The New York Times woke up this morning, reached up for the curb, and, in a drunken, slurring, liberal fit, decried the horror of minority neighborhoods facing the lion's share of foreclosures.

The effect that the Community Reinvestment Act (CRA) on the housing is one of the touchier questions in the financial crisis debate. The act was designed to encourage more minority lending, and though it doesn't require banks to lend out to shaky borrowers, banks make certain CRA commitments in order to get regulatory approval for acquisitions. A possible effect of this is that banks wishing to grow via acquisition end up with an outsize volume of these commitments. So what's the effect at national banking giant Bank of America (BAC). On the company's conference call, CFO Joe Price said the...

After writing several articles about this country’s mortgage meltdown and the little-talked about role which illegal aliens have played in this crisis, a woman who I will call “Mary” contacted me with inside information on the crisis. What follows is a brief interview I conducted with Mary. (I am protecting her identity because she still works in the mortgage business.) Q) What is your background and who have you worked for? A) I am in the Mortgage Industry and personally audited thousands of sub prime loans while working as a contractor. The last company I worked for was EMC, previously...

Some government officials never learn from their mistakes. Case in point, the Federal Deposit Insurance Corporation (FDIC) is chastising a New England financial institution for not making enough risky loans: A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success. The secret behind East Bridgewater Savings Bank's accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli. "We’re paranoid about credit quality," he told the Boston Business Journal. That paranoia has...